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As one of the first to take advantage of the Maquiladora Program, the electronics industry in Mexico is well established. In fact, it’s been one of Mexico’s chief manufacturing enterprises for decades, involving several key product areas and major industry leaders from around the world. 

But it hasn’t flatlined. Mexico’s electronics industry continues to grow. As the country has evolved from simple assembly operations to now leading the way in innovation, cutting-edge design, and higher-end products, the electronics industry in Mexico is charting the way forward in the global electronics economy.

By the Numbers

Industry statistics in Mexico demonstrate a vibrant electronics industry already dominating in several key areas. 

• Mexico is the world’s largest exporter of flatscreen TVs.
• Annual industry investment currently stands at approximately $5 billion USD.
• Mexico manufactures over 20 million TVs per year just in Tijuana.
• Mexico is also the 6th largest producer of electronics in the world.
• Mexico is the 2nd largest electronics exporting country to the US. 
• Annual industry growth is usually in the double digits, with 20% reported 2010-2011.
• 30% of Mexico’s exports are electronics.
• Total production for 2020 was $8.5 billion USD.
• Even in the 2020 slowdown, Mexico’s electronics components registered 7.1% revenue growth, making it the fastest growing sector in Mexico.

Mexico’s Electronics Manufacturing Clusters

According to official numbers for Mexico’s electronics industry, the country has well over 1,100 companies designing and manufacturing electronic devices and components. While these companies can be found throughout the country, there are a few places where they clearly coalesce into industry clusters. 

Mexico’s primary electronics industry clusters are found in Nuevo León with 105 companies, Chihuahua with 112 companies, Jalisco with 118 companies, and Mexico City with 127 companies. However, the location of the undisputed leading cluster is Baja California, home of Tijuana and about 200 electronics companies.

Many multinational electronics OEMs and ODMs are heavily invested in these electronics manufacturing clusters. Some of these companies include:

• HP
• Samsung
• Panasonic
• LG
• Foxconn
• Toshiba
• Sony
• Siemens
• RCA
• Compaq
• Vizio
• Zenith
• Lenovo

Not all of these companies use wholly owned subsidiaries to make their products. Many of these global leaders in electronics open maquiladoras (manufacturing facilities) in partnership with a shelter company. This allows them to harness all the cost savings of Mexico without having to take on the additional risk exposure and administrative headache. 

Focus Areas of the Electronics Industry in Mexico

Broadly speaking, the electronics industry in Mexico is broken down into five key areas of manufacturing:

1. Audio and video
2. Computing and office
3. Semiconductors
4. Communications and medical equipment
5. Precision measurement, navigation, control, and optical instruments

Without a doubt the most manufactured products in Mexico are computers, flatscreen TVs, and smartphones. Mexico is the leading manufacturer and exporter of TVs in the world. And their mobile device market is growing by leaps and bounds. 

However, Mexico has evolved over the years. Early in their industry involvement, Mexican operations focused on mass production and low-skill assembly. This has completely changed, however. Mexico now focuses on a high-mix approach, with smaller batches of higher value-added products. 

Mexican Electronics Design

This leads us to the subject of Mexican design contributions to the industry. As Mexico has increased her trade agreements and standing as a destination of choice for global export manufacturing, companies around the world have come to expect more. Simple, low-cost assembly may have been the beginning of the electronics industry in Mexico, but Mexican contributions now include leading innovation and design.

Mexico now provides advanced research and design services and the manufacture of highly sophisticated products, including:

• Semiconductors
• LCD panels
• Microprocessors
• Chipsets
• Microelectronics
• Printed circuit boards

Mexico graduates well over 100,000 new electronics engineers into the workforce every year – more than in the United States. And since 2008, one in four appliances sold in the US are of Mexican design. Even many sold under the brand names of other OEMs from countries like Taiwan, Korea, or Japan, are in fact designed and manufactured in Mexico.  

As demand and product specifications in the electronics industry evolve, Mexico is evolving, too. Over the past three decades, the Latin American country has proven itself to be a world leader in manufacturing these devices and technologies. And there’s every reason to believe this growth and leadership will continue. 

More and more manufacturers are asking, just what is Mexico’s IMMEX program, and how can it help my business?  To better understand how this trade instrument significantly cuts import/export costs for foreign companies, we will break down its various components, benefits, and regulations. 

For those interested in establishing a manufacturing operation, we will also discuss how to go about it. What are the important considerations when exploiting the Maquila program or IMMEX? How can it cut your costs? These and other questions will be addressed below as we explore the history, impact, and requirements of this increasingly popular outsourcing option.

The Background

Labor sharing between the US and Mexico goes back many decades. In the 19th and early 20th centuries, this primarily took the shape of migrant workers crossing the Rio Bravo to work in US farm fields. Cheap, unskilled labor helped get harvests in and planting done on time. This was largely due to the Bracero Program, which ended in the 1960s.

The glut of labor left on the Mexican market led to advent of a more proactive cooperation between the North American countries. Eventually, this interest in skill sharing and cooperative production led to the modern institution of the maquiladora or assembly factory for US companies. The Maquila Program (IMMEX) has become a pilar of the Mexican economy and a vital element of US competitive manufacturing. 

How Mexico’s IMMEX Program Works

The Maquila program established in the 1960s was later codified in 2006 according to the IMMEX Decree. This federal decree affords US companies the unique opportunity to temporarily export equipment and materials into Mexico duty-free on a temporary basis. Maquiladora factories in Mexico use these imports to produce goods that are then exported back to the States duty-free. While in Mexico, the inputs and equipment are considered for tariff purposes still in the US, since they will soon be shipped back.

The IMMEX Decree aims to:

• Increase strength and competitiveness for Mexico’s exports
• Add certainty, transparency, and continuity to manufacturing by organizing and simplifying compliance
• Allow manufacturing companies to find and implement new methods of doing business
• Reduce logistics and administrative costs
• Enhance production procedures through modernization and streamlining
• Increase oversight and facilitate the capture and retention of FDI (foreign direct investment)

There are five classifications of maquila operations, depending on your goals and situation. However, option 4 benefits US manufacturers most:

1. Holding Company: allows one entity to register under IMMEX and pass along the benefits to one or more subsidiaries with strict reporting requirements.
2. Industrial: this basic form of maquila allows a company to import raw materials and equipment to manufacture or transform products for export.
3. Services: covers companies that support maquila manufacturing with necessary for exporting relevant goods through IMMEX.
4. Shelter: allows US companies to partner with a Mexican business or shelter operation. This Mexican company is responsible for all legal requirements, liability, and compliance issues for the US company’s manufacturing operations performed under the IMMEX registration of the Mexican company. 
5. Outsourcing or Third-Party: allows a company without adequate facilities to partner in joint-liability with another IMMEX registrant.

The Benefits of Maquiladoras

Mexico’s IMMEX program provides an immense benefit to US companies wishing to take advantage of the highly skilled but very low cost of labor in Mexico. Depending on the nature of the finished product, the company may entirely sidestep value added tax (VAT) and general import tax on goods that enter Mexico for a specified period of time (usually 6-12 months) and for the express purpose of being later exported. This temporary assignment presents foreign manufacturers the equivalent of a significant tax incentive for doing business in Mexico. 

There are other cost-saving benefits, too:

• Reduced shipping times vis-à-vis other popular outsourcing destinations like China
• Fast startup times, due to the well-established procedures and protocols established in the IMMEX Decree
• Low labor costs for both simple assembly and high-skill manufacturing
• Further tax savings on domestic purchases on items to be used in the finished product
• Reduced customs fees for machinery and goods

IMMEX Requirements

Obtaining registration under Mexico’s IMMEX Program is actually not difficult. But companies must meet certain requirements:

• Export $500,000 USD annually or 10% of company sales in Mexico
• Import only goods approved according to the HTS classifications
• Use goods only for their approved purposes
• Abide by all terms of Article 108 Mexico Customs Law and Article 4 IMMEX Decree
• Have a legal entity in Mexico subject to Mexican income tax
• Have goods in the approved location
• Inform the Economic Secretary of any changes regarding legal name, address, tax ID, suspension of activities, etc.
• Implement inventory control according to Customs Law
• Export or transfer to another IMMEX company within six moths for textiles, 12 months for some food and textiles products, 18 months for combustibles and lubricants and packing products, and 24 months for equipment and spare parts

How to Establish a Maquiladora Operation

If you are considering Mexico’s IMMEX Program as a potential solution for your manufacturing needs, there are some things you will need. Opening a factory in a foreign country can be a daunting process. To simply things somewhat, below is a list of requirements in addition to your IMMEX application for registration:

• Advanced electronic signature certificate (SAT)
• Federal taxpayer registration
• Active tax domicile in the federal taxpayer registry
• Certified copy of your articles of incorporations along with any modifications
• Copy of a document certifying possession of the property on which your maquiladora will operate (leases must show a minimum of one year) with photographs
• Contract of maquila, showing the orders of purchase your operation will fulfill
• Copy of your Power of Attorney or Unique Registry of Accredited Persons (RUPA)
• Document detailing which IMMEX guidelines the maquila processes fall under
• Document detailing production processes and plant capacity
• Letter of conformity from the company or companies manufacturing or sub-manufacturing, declaring the specific liability on temporarily imported goods

If you’d like to eliminate the complexity and get right to leveraging IMMEX’s benefits, contact us now to discuss our simplified shelter services!

Among the country’s many benefits for export manufacturers, Mexico’s free trade agreements rank near the highest. Manufacturing for export is heavily influenced by tariffs and trade access. But those countries who do business in the Latin American country have the majority of world markets at their fingertips. 

Mexico’s aggressive pursuit of preferential treatment for their exports is unrivaled around the world. And without a doubt, the ability to minimize tariffs or export duty free to most of the world is a strategic advantage that places Mexico in a class of their own.

Why Free Trade Agreements?

A free trade agreement (or FTA) is essentially a pact or covenant between two or more countries with the goal of increasing trade between the signatories by reducing trade barriers.

Typically, nations trade with one another subject to uniform tariffs on imported goods. This allows the government of each country to collect a tax at customs, thus resulting in an increased price to the consumers in that country. If countries want to avoid or minimize exposure to these and similar fees and taxes, it is beneficial to negotiate a free trade agreement to set standards and stipulations whereby these barriers can be waived or reduced. Free trade agreements greatly reduce or eliminate entirely tariffs, quotas, subsidies, or prohibitions.

In general, there are several key advantages that make FTAs desirable for producing countries:

• Increased economic growth
• A more vibrant and dynamic business climate
• Reduced government spending and industry subsidies
• More foreign direct investment (FDI)
• Broadened expertise from international companies
• Increased technology transfer

Mexico: Global Leader in Free Trade

Mexico already offers international companies numerous advantages for manufacturing there, rather than in some other offshore location like China. But perhaps their primary strategic advantage is the access they have to global markets.

Mexico’s free trade agreements open up free trade with at least fifty countries around the world via fourteen FTAs. These include access to massive US consumer market via the USMCA, access to the entire European Union, and many others. Through these combined FTAs, Mexico has preferential trade access to 60% of the world’s gross domestic product.

These bilateral and multilateral pacts have resulted in a manufacturing dynamo in Mexico that is growing rapidly, and has been for decades. The country boasted global exports of over $473 billion USD in 2019. Leveraging this unprecedented free trade access, Mexico is now the 12th largest export economy in the world. No country on the planet has more FTAs than Mexico. 

Mexico’s Free Trade Agreements

As the leading country for free-trade access to the planet, Mexico has inked some rather historic deals, opening up major markets. Here are some of the country’s most notable agreements. 

USMCA/NAFTA

NAFTA was one of the biggest trade deals of any nation in modern history. Superseded by the USMCA, the FTA effectively eliminates tariffs on trade between the US, Mexico, and Canada, so long as products meet a minimum 60% rule of origin. Products made of at least 60% parts from North America may be manufactured in Mexico and exported duty-free to the US or Canada. Over three quarters of Mexico’s products now go to the US because of the deal.

EU-Mexico 

The EU-Mexico free trade agreement currently in place is a modernized version of an agreement they entered into in 2000. The deal was one of the most comprehensive agreements ever entered into by the European Union. Nearly all goods are duty-free under the new terms. In the ensuing two decades, trade between Mexico and the EU has grown substantially year over year. The EUS is now Mexico’s second-largest export market and third-largest import market.

Economic Partnership Agreement (Japan)

Japan’s first comprehensive free trade agreement in history was the EPA with Mexico signed in 2004 and revised in 2011. This made Japan the fifth-largest export destination for Mexico.

The Pacific Alliance

This Latin American trade bloc is comprised of Mexico, Columbia, Chile, and Peru – and more than a third of all Latin American GDP. Trade between these countries is entirely duty-free as of 2020.

Other Agreements

The list of Mexico’s free trade agreements keeps going. Other lesser known but highly successful trade partnerships include:

• CPTPP (formerly the Trans-Pacific Partnership)
• The European Free Trade Association
• Mexico-Central American Free Trade Agreement
• Mexico-Chile Free Trade Agreement
• Mexico-Uruguay Free Trade Agreement
• Mexico-Israel Free Trade Agreement
• Mexico-Peru Trade Integration Agreement
• Mexico-Central America Free Trade Agreement
• Mexico-Bolivia Economic Complementation Agreement

Visiting Mexico for business can be confusing and challenging. Though Mexico is just across the US southern border, US culture and business norms are far from the way Latin Americans do things. Add into the mix visa requirements and travel regulations (and perhaps tourist destinations if time permits), and you just might find the process downright overwhelming. 

However, business travel in Mexico is absolutely essential for executives overseeing manufacturing operations in the country known for its low-cost assembly and high-skilled manufacturing offerings to US firms. And since Mexico travel is unavoidable for competitive manufacturers leveraging these assets south of the border, you might as well go informed and prepared, right? 

To that end, let us explore some of the most important considerations to keep in mind when travelling to Mexico for business purposes. We’ll learn about safety, etiquette, culture, and documentation, and more – to make your business trip effortless, safe, and enjoyable.

Business Etiquette

In Mexico, there are several differences in business etiquette from that in the US. For example, Mexican meals typically revolve around the midday meal or “comida.” This would be akin to the US business lunch, but it is a much more involved and drawn-out affair. It typically takes place during midafternoon and can last two hours or more.  

While it varies from region to region, and places like Baja California can be more casual, early-midafternoon is generally reserved for the midday meal. This meal can last as much as two hours or more. And if you must mix business with lunch, don’t expect the business lunch to be all business. Mexican etiquette dictates that business come after much small talk, and the meal may involve smoking and alcoholic beverages. Remember the Mexican adage, friends first and business second. Expect to spend at least half an hour getting to know one another before discussing business topics.

Time etiquette is also very different in Mexico. When on business travel in Mexico, expect their times to be much more flexible than in the US. While punctuality is generally expected for business events, attendees can sometimes be up to an hour late without cause for alarm. The business day does not usually begin until around 8:00am, but may last until 6:00pm in Baja California.

Formality is stressed more in Mexican business. These meetings will also last longer than in the US, but casual wear must never be worn in such settings. Business suits are expected for official meetings with dignitaries, but business casual is acceptable in all other occasions. Do not negotiate aggressively, as this is considered rude. Likewise, you will notice Mexican businessmen do not typically say “no,” but rather say “yes” in vague and general ways to indicate “no.” Mexican professionals are very keen to not offend or be too direct. 

Businesses usually follow national holidays strictly, and may often turn them into extended weekends like in the US. Do not expect anyone to conduct business during these periods. Some of the more popular national holidays include:

• Mexican Independence Day (September 16)
• Day of the Dead (November 1-2)
• Anniversary of the Mexican Revolution (November 15)
• Christmas Day (December 24-25)
• New Year’s (December 31-January 1)

Transportation in Mexico

If your business travel in Mexico is limited to the border region, you may find it preferrable to drive into Mexico. This area is known as the Mexico Free Zone, and requires no special permits or visas. You may use your US car with its US registration (and possibly insurance) without hassle. 

However, you may choose to fly in from your US location. Most major US cities offer direct flights to major Mexican cities. Some of the airlines that fly direct include JetBlue, Southwest, Delta, and American.

For getting to your Mexican location from the airport, Uber and taxis are available. Use only registered sitio taxi lines for safety, not independent taxi operators. Some major cities in Mexico also offer a standard fare to any location within the city. Most in-city fares range 250-350 pesos. 

Safety of Business Travel in Mexico

The first question that comes to mind for most executives is, Is travelling to Mexico safe? There’s no denying the high crime rate in some of Mexico’s cities. However, some states are worse than others. Travelling to Mexico has risk but is safe with some precautions. 

The US State Department recommends not visiting the Mexican states of Michoacán, Guerrero, and Sinaloa. But in other areas, the ranking typically calls for caution. Most crime is associated with either involvement in the illegal drug trade or lack of caution. Some rules of thumb include:

• Don’t drive at night.
• Don’t travel alone.
• Leave itinerary and copies of important documents with a trusted person at home.
• Dress sensibly, not in flashy jewelry or gaudy clothing. 
• Be smart and do your research about the areas you visit.

Tourism

All work and no play make Jack a dull boy, so the saying goes. You’re in Mexico! Take some time to enjoy the visit and explore cultural heritage sites, tourist attractions, or soak in the local cuisine. Business travel in Mexico is expected to include at least some attention to tourism and leisure.

Most of Mexico’s major tourist attractions are located in the central or southern part of the country. But if your business travel only takes you to the border region, there are experiences to enjoy there, too. Some of Mexico’s greatest attractions include:

• Chichen Itza: Located in the Yucatan, this Mayan city and pyramid is probably the most visited spot in in all of Mexico – and for good reason! 
• Teotihuacan: Located somewhat northeast of Mexico City, this area boasts some of the largest and most incredible pyramids on the planet. 
• Puerto Vallarta: Located on the Pacific coast in Jalisco, this popular resort town offers whale sightings, lush jungle mountains, and endless beaches. 
• Copper Canyon: Located in the northern state of Chihuahua, this network of six canyons is named for the copper-green color of the canyon walls and measures larger than the Grand Canyon in the US. 
• Los Cabos: Located in Baja California Sur, this area is known as the marlin fishing capital of the world and features luxury resorts, world-class cuisine, championship golf courses, scuba and other water sports, and a relaxed ambiance accented by breathtaking colonial architecture.

COVID Border Restrictions

Due to the COVID situation, business travel in Mexico is subject to changes and additional restrictions at the border.  Currently, the land border is effectively closed to non-essential travel. However, most business travel and shipments are permitted. Consult the Department of Homeland Security (DHS) and Customs and Border Protection (CBP) requirements for specifics.

Passengers and vehicles are freely entering the Mexican border, and airlines carry passengers in and out of the country. Travelling by air, freight rail, or open sea is virtually unrestricted. However, airlines typically require masking on board. 

Essential documents for travelling in Mexico, as per usual, include:

• Passport for all visitors
• Free, 180-day visa (FMM) for all visiting outside the border region
• Temporary Mexico Resident Card if staying long-term

Beginning in textiles, manufacturing in Mexico has a long and storied history. The Latin American country is now a source for low-cost, high-skilled manufacturing for major producers in the US and across the globe. 

Major industrial hubs have sprung up all along the north region and throughout the country in markets as diverse as specialty plastics and as traditional as metalworking. What began as a few clothing and textile factories along the northern border has since become a major operation making Mexico a leading manufacturing force on the global scene. 

History of Manufacturing in Mexico

When the Bracero Program for sending farm workers to the US ended in the 1960s, Mexico transitioned to manufacturing as a primary economic activity. Through several cooperative trade agreements, the US and Mexico helped create a growing industry based on manufacturing for export. As a result, recent decades have seen a steady increase in assembly and skilled manufacturing in Mexico. 

What began as simple assembly now includes increasingly sophisticated manufacturing for incredibly diverse and complex niches. And as Mexico continues adapting, the country’s involvement in manufacturing is growing. 

• Mexico’s academic institutions now partner directly with industry to create specialized programs for training the future workforce. 
• Mexico’s government has invested heavily in key infrastructure objectives to benefit manufacturing.
• Mexico’s modernization now offers foreign investors cutting-edge industrial parks and factories.
• Mexico’s diplomatic efforts have brought about trade relations with all the major global markets.

Common Ways to Manufacture in Mexico

Foreign producers wanting to plug into this vibrant manufacturing economy have a few popular methods of going about it. The most common include:

Joint Venture: a foreign company can partner with a Mexican company to utilize their operations south of the border, which can be complicated or challenging due to different visions, cultures, etc.

Contract Manufacturing: Early-stage or growth-stage companies with an existing product can simply and easily place an order with a contract manufacturer in the country for products to certain specifications.

Wholly-Owned Subsidiary: large, well-established manufacturers may opt to purchase outright or establish a Mexican company wholly owned by the parent company to pursue its manufacturing objectives in Mexico; however, this is a long-term and expensive option that rarely benefits smaller, less flexible organizations. 

Shelter Service: manufacturing in Mexico is greatly simplified with this option, which allows a foreign company protection from regulatory and bureaucratic hassle and risk by partnering with a shelter company that handles import/export, hiring, site selection, etc.

Mexico’s Major Manufacturing Industries

Mexico may have started with textiles, but the country has grown rapidly in the past half century to now compete in virtually every manufacturing market. Some of the primary areas of Mexican manufacturing include:

Aviation and Aerospace

Aerospace is without a doubt one of the key industries currently manufacturing in Mexico. And the country is projected to be in the top ten aerospace exporters globally by 2026 as growth in the sector intensifies. 

Automotive 

Mexico is currently the 7th largest automotive producer in the world, and 5th largest producer of auto parts. According to the USMC, as long as at least 75% of the product is made in North America, the finished product may be exported duty-free. Major automotive brands operate in Mexico, such as Ford, GM, Nisson-Daimler, BMW, Toyota, and more.

Medical Devices

As technology evolves, so does the need for highly sophisticated medical device manufacturing like that in full swing south of the border. Medical device manufacturing accounts for 70% of all Latin American medical device exports and averages over $11 billion USD in annual sales. 

Other vital manufacturing segments growing in Mexico include:

• Electronics
• Molding
• Furniture
• Machining
• Millwork
• Cosmetics
• Retail packaging
• Machine learning
• Energy storage
• Consumer products

Key Manufacturing Regions

Manufacturing hubs may be found throughout Mexico, but the two most active regions are generally along the northern border and to a lesser extent in the center of the country. Some of the most advanced manufacturing hubs are in border-region cities like:

• Tijuana: the largest city in Baja California, Tijuana boasts over 50 million border crossings a year and one of the most technologically advanced manufacturing hubs in North America.  
• Tecate: in spite of being a border city in Baja California, this city offers manufacturers a very stable workforce, as most of the 100,000+ residents having roots in the city. 
• Rosarito: a resort town along the Pacific, this city is also a major hub for electronics manufacturing, automotive manufacturing, and medical device manufacturing. 
• Ensenada: as a cargo port on the Pacific, this city is highly strategic for access to Asian markets as well as the US, located just 60 miles away. 
• Mexicali: with modern infrastructure and secure industrial parks, the city has become a hub for large industrial manufacturers.

Mexico’s Economic Outlook

While manufacturing in Mexico has on average grown from decade to decade, there is no denying the contraction that occurred due to the recent global crisis. Private spending in consumer markets decelerated, and uncertainty with USMC also contributed to the slowdown. 

However, post-pandemic, Mexico’s economic outlook remains positive. Trade relations with the US have normalized. Vaccine rollouts have eased financial markets. And already, key industries like automotive and consumer products are rebounding. In light of these signals and past trends, analysists predict that Mexican manufacturing is set to rebound quickly. 

And just as Mexico has given foreign manufacturers the advantage they need to increase market share and competitiveness over the past decades, the future looks equally promising. New investment continues to pour in, and Mexicans are getting back to work. This Latin American country will continue to exhibit a pattern of growth and innovation as a partner of choice for manufacturers around the globe.

Recent governmental policies have challenged Mexico’s energy sector, but there is reason for optimism. The country’s general trend has been for energy liberalization. However, the current presidential administration has opposed this trend. Yet, the outlook coming out of the recent industry summit at the Mexico Gas Summit is optimistic.

The Mexico Gas Summit

For nearly a decade, Industry Exchange LLC in San Antonio, Texas has hosted an annual summit for policy makers, industry leaders, and investors in Mexico’s energy sector. This annual meeting of the minds focuses on important issues in onshore regulation, midstream pipeline infrastructure, fuel storage, natural gas commercialization, and more.

The Mexico Gas Summit provides industry stakeholders a forum to gain valuable insights, explore strategic relationships, and discuss in depth the unique opportunities afforded by US and Canadian interconnectivity with Mexico’s energy sector.

One attendee from the Woodrow Wilson International Center, Duncan Wood, summarized the general consensus at this year’s meeting. He lamented that “Mexico’s energy wealth is largely still stuck in the ground.” But he was quick to add:

Mexico is not entirely closed for business. The energy sector still offers extraordinary opportunities. Different actors are finding different opportunities in that space…[the services sector] continues to do good business and the private sector continues to make discoveries.

Mexico’s Federal Government

The response of the Mexican government toward energy exploration and exploitation has been problematic over the years. Because of previous corruption and foreign control, for three quarters of a century the country limited Mexico’s energy sector to governmental control only. However, the administration of President Enrique Peña Nieto threw open the doors of business to private ownership and investment in 2014. 

The move was part of a broader reformist platform that carried Nieto into power. He promised sweeping reforms, not the least of which was tapping Mexico’s vast energy reserves through private-public cooperation and competition. The government energy monopoly, PEMEX, would continue to be the most significant player in the field, but private bids on gas fields would be granted.

However, the recent election of AMLO presented a challenge to this trend. While private investment had already opened up much of Mexico’s reserves, the vast majority went untapped. President Obrador (AMLO) campaigned on reversing this privatization. However, he has failed to enact a single constitutional amendment to this effect. And public opinion is that he never will.

The recent midterm elections were seen as a resounding rejection of these strongman tactics to reverse course. The president’s party no longer holds a two-thirds majority, and all eyes are on the 2024 election as it seems unlikely any of the other possible candidates will continue this radical anti-liberalization agenda.

A Positive Outlook for Mexico’s Energy Sector

Mexico has aggressively pursued infrastructure modernization and expansion to attract foreign industry and bolster domestic business. And the current president is on board with this agenda, announcing in late 2020 a fresh commitment of 300 billion pesos across 39 new infrastructure projects in energy and other areas. One key project these funds will go to is the Baja Power Infrastructure project. This will include many miles of new transmission lines, more mining, and a reduced cost of energy in the manufacturing epicenter of Baja California.

Mexico’s energy sector is currently embroiled in a high-profile legal battle in the upstream oil and gas segment. Houston-based Talos Energy Inc shares a shallow water oil deposit with Mexico’s oil firm, PEMEX. This deposit, called Zama, was recently granted entirely to PEMEX in a perceived challenge to private exploration. While this is being contested in the courts, attendees of the recent Mexico Gas Summit were quick to point out that previous court decisions have upheld Mexico’s energy liberalization and favored private ownership.

In spite of the challenges, there are reasons for optimism. Mexico is the 9th largest consumer of natural gas in the world, and much of this demand comes from manufacturing and industry. This is all the more remarkable considering much of the southern half of Mexico is largely cut off from natural gas infrastructure. 

Yet, demand is rising. New discoveries are being made. The private sector is becoming increasingly involved in opening up this potential. And in the words of one CEO in attendance at the summit, “We think there is a tremendous opportunity in Mexico.”

Due the success of the maquiladora system in Mexico, many US manufacturers choose to establish production centers along Mexico’s norther border, a region known as the Mexico Free Zone. Since the 1960s, the area has become a major industrial hub. Some of the world’s largest manufacturers have plants there. And as integration and interdependent supply chains grow, so does the level of output and cost efficiency. 

However, this zone presents a unique set of circumstances that any manufacturer should understand. Whether seeking to manufacturer in Mexico, expand existing Mexican operations, or even to understand more about visiting the region, the Mexico Free Zone is a special place with important rules and freedoms we will explore now.

What is the Mexico Free Zone?

In order to encourage trade, tourism, and industry along the northern border, Mexico designated a region as the Mexico Free Zone, sometimes also called the Zona Libre or Free Zone. Typically, the zone extends out from the border approximately 20-26 kilometers or 12-16 miles. The entire Baja peninsula and much of the Mexican state of Sonora are included. 

Essentially, this customs-designated area is not considered part of Mexico as far as imports are considered. Items imported into this region from foreign countries are not considered imported for tariff purposes while they are in this area – thus being allowed under certain restrictions to enter the Mexican market duty free. Likewise, products and materials brought from the Mexican interior are considered already exported when they are in this region – thus being allowed to enter the US without tariff restrictions.

Likewise, US citizens who manage and oversee Mexican operations are subject to far less hassle when living or staying in this region. Driving a US car into Mexico typically requires purchasing a Temporary Vehicle Import Permit (TIP). Without this special permit, driving a foreign-plated car in Mexico can subject you to fines, deportment, or even jail time. However, there is no TIP requirement for the Mexico Free Zone. US drivers are allowed to drive with their US driver’s license and vehicle registration. However, the current US-Mexico border restrictions are in flux due to the ongoing COVID situation. 

Additionally, southbound cross-border trucking involves immediate passage into the free zone where paperwork can be verified. While they are in this “hassle-free zone,” their papers are checked by customs officials and then cleared for entry into the country’s interior if that is their destination. The zone acts as a kind of lobby for commercial trucks. 

Manufacturing in the Border Region vs. Interior

Since the rise of the maquiladora system and increasingly so with the advent of the NAFTA (now USMCA), Mexico’s economy was reoriented around manufacturing for import/export. Border cities like Tijuana grew exponentially as companies from the US and other countries recognized the distinct advantages of manufacturing in this low-cost environment rich in human capital. However, some companies have found locations in the interior of Mexico also have advantages. The Mexico Free Zone is not the only place to manufacture in Mexico; it has both pros and cons.

• Transportation costs are lower shipping from there.
• Proximity to the US allows for ease of management and faster time to market.
• Cities along the border are highly niched and specialized, whereas manufacturing in the interior tends to be more diversified.
• There are security concerns (albeit minimal) foraying into the Mexico interior as a foreign entity.
• There are also security concerns for manufacturing in the border regions where crime rates are typically higher.
• Infrastructure is generally more advanced in the border regions.
• Bilingualism and biculturalism are much higher in the Mexico Free Zone region.
• Turnover and absenteeism are lower among the workforce in Mexico’s interior.

For companies highly committed to exploiting the numerous advantages of Mexican manufacturing, it might make more sense to plug into industrial hubs in the central region of Mexico. But for the average US manufacturer interested in cutting costs through quality outsourcing, it’s hard to beat the advantages offered by the border region. 

Materials and products in this region are in a special “in-between” zone that protect them from tariff considerations. And driving around is not an issue, as this place has come to be called the “hassle-free zone.” More and more companies are choosing to nearshore their manufacturing operations just south of the border to remain competitive.

In our modern world, lifesaving technology and supplies are taken for granted. But as technology evolves and the cost of healthcare rises, the medical device industry in Mexico is increasingly growing in importance. 

From ventilators to pacemakers to 3D printed parts, medical manufacturing is vital to our way of life. And as these devices increase in sophistication through integration with artificial intelligence and wireless communication, the need for skilled assembly labor rises, too. 

Mexico suits this purpose beautifully. Through its skilled-yet-affordable manufacturing labor, its proximity to major markets, and its impressive infrastructure capabilities, the Latin American country has become a major source of affordable medical device manufacturing for the world. 

By the Numbers

Currently, Mexico is a leader in both importing and exporting medical devices. The country is an established life sciences powerhouse with impressive rankings in the global medical devices industry. Currently, Mexico:

• Accounts for 70% of all Latin American medical device exports
• Averaged $11.1 billion USD annually in industry sales, 2014-2018
• Is the 7th largest medical devices exporter in the world and 2nd largest in Latin America
• Exports industry products to 135 countries
• Imports approximately $3 billion USD annually
• Is expected to average $15 billion USD in medical device exports in the near future

Mexico’s Medical Device Manufacturing Hub

Primarily based in Baja California, the medical device industry in Mexico is responsible for around 140,000 jobs. Medical device manufacturing is considered a major contributor to the national economy and employment, especially in that region. With around 80 companies making medical devices in that region alone, it’s no surprise that the region’s primary manufacturing city, Tijuana, has become known as the medical device manufacturing capital of the world. 

Global leaders that manufacture medical devices in Mexico include notable names like:

• Medtronic
• Johnson & Johnson
• Welch Allyn (Hill-Rom)
• GE Medical Systems (GEM)
• Integer

Medical device manufacturing is also entrenched and thriving in other regions of Mexico, such as Chihuahua, Coahuila, Nuevo León, Jalisco, Sonora, and Tamaulipas. By and large, these regions are in the border region and benefit substantially from proximity to US manufacturing and distribution hubs. 

Mexico Affords Industry Growth

While the product registration process in Mexico is slow, leading to a backlog, the country offers several key advantages. First, the cost-efficiency of Mexico’s skilled labor allows for the labor-intensive production demands of this market. The medical device industry in Mexico thrives because the cost of labor is low and highly skilled. Medical device manufacturing requires highly complex assembly and various stages of hand construction, all of which Mexican labor excels at.  

Additionally, Mexico already has in place a highly developed industry hub for this niche. Companies that produce medical devices can plug into highly integrated supply chains, state-of-the-art industrial complexes, and various transportation modalities for exporting these produces all around the world.

But shipping across the world is optional. The bulk of the medical device industry in Mexico is located just 30 minutes from San Diego, literally the third most important US city for the life sciences market. Mexican factories are highly interconnected with their US counterparts, allowing for back-and-forth collaboration, innovation, production, and distribution.

The academic situation in Mexico is also industry-friendly. Universities and technical schools equip graduates with industry specific skills often in cooperation with industry leaders and government. The result is a made-to-order workforce approximately 156,000 strong specifically in this sector. As such, it is no surprise that approximately 70% of the world’s leading medical device companies have operations in Mexico. 

Ease of Getting Started in Mexico

Fortunately for the medical device industry in Mexico, getting started there is actually pretty simple. For smaller companies, the preferrable option is often contract manufacturing. This allows for more flexibility and less of a commitment. Alternatively, major companies opt to open a wholly-owned subsidiary there for maximum control and long-term commitment. 

But a large segment of the industry operates on the shelter model. This option allows foreign companies to jointly partner with a shelter company already registered and embedded in Mexico that handles all the administrative hassle, freeing them up to focus on their product. The shelter company already has in place the necessary certifications, vendor networks, hiring practices, and even optimal manufacturing locations, making it easy to leverage Mexico’s advantages for long-term success in the medical device industry.

Among the top considerations for successful manufacturing companies is ways to reduce manufacturing costs. Especially in uncertain times and highly competitive industries, the question becomes all the more pertinent. 

Where can you cut costs without sacrificing quality? How can you eliminate unnecessary expenditures? Where are the opportunities for reducing the price to manufacture your products? 

Three Primary Cost Sources

The key to answering this question revolves around identifying the three basic areas of expense: direct labor costs, materials costs, and overhead costs. You will find the best ways to reduce manufacturing costs by examining these three general areas of expense and analyzing them for specific cost-cutting opportunities.

• Direct labor costs of course include wage spend. But that’s not all. In addition, this category can also include spending for health coverage, profit sharing, retirement fund contributions, travel expenses, paid time off, etc. 
• Materials costs are the cost of any materials directly related to the manufacturing process. This is not limited to raw materials that go into production. It can also include packaging, fuel and energy, etc.
• Overhead is a broad category that should be thoroughly investigated for cost-cutting options. This category can include site maintenance, equipment repair, warehousing, site construction or lease costs, uniforms, vehicles, utilities, insurance, etc.

With this in mind, we find the following seven options within these three areas are most effective at boosting productivity without lowering quality standards.

1. Start with an Audit

Begin with a plan and quality intel. Conduct a full audit of your entire production process, focusing on direct labor, materials, and overhead. Track these costs for a time, and then identify key areas for improvement or change. Broadly assess the situation, and then hone in on specific ways to reduce manufacturing costs throughout your process.

2. Examine Staff Hours

Of course, the most obvious place to look for ways to reduce labor costs is in hours worked. But it’s also one of the best. Hours worked is a substantial portion of overall production costs. And it is often the case that employees are working more hours than needed. 

Ask if your employees are working too many shifts. Can tasks be streamlined to reduce the number of shifts each employee works? Or can some tasks be combined to reduce the number of overall shifts needed. 

3. Optimize Workforce Productivity

Get involved with your workers and really connect with them. What motivates them as individuals? What increases team productivity and process efficiency? Increasing productivity among manufacturing staff is a surprisingly effective way to reduce manufacturing costs by doing more for less. 

• Provide the right tools
• Improve the manufacturing environment
• Reduce time wastes
• Ensure effective communication
• Invest in workplace culture and morale

4. Reduce Materials Costs with Better Product Design

If approximately 80% of product cost is determined by the design, and the concept alone determines 60%, it stands to reason that designing with savings in mind is critical. To reduce materials costs, take them into consideration during the design phase for each product. 

Ask your vendors and suppliers or input. One of the key benefits of working with a shelter service is the vibrant supplier relationships they have already in place. Working in cooperation with the people who supply your materials at the design level is an often overlooked but very effective way to reduce waste and ensure cost efficiency in production.

5. Negotiate with Vendors and Manufacturers

If you are outsourcing your manufacturing, whether to a contract manufacturer or through the shelter model, go to your manufacturer with competitor quotes and ask if they will match the price a competitor. 

If you are manufacturing in house, ask vendors and suppliers how you can reduce materials costs. Can you extend your contract time for a better bulk discount? Again, having a strong working relationship with your manufacturing partners is critical to more efficient manufacturing.

6. Incorporate Lean Manufacturing

One of the key ways to reduce manufacturing costs in the overhead category is to go lean. Lean manufacturing originated from the Japanese model of efficiency and refers to a philosophy of continuous improvement. In short, any waste must be eliminated. Look for ways to eliminate waste in defective parts, overproduction (consider just-in-time manufacturing), talent utilization, inefficient transportation, excess inventory, motion waste on the assembly line, process redundancy, etc.

7. Leverage a Shelter Service

As mentioned, a shelter service already specializes in these very methods of cost savings. They invest heavily in cultivating a highly productive workforce, go to great lengths to build a vibrant supplier network, and combine processes for maximum efficiency. The cost savings associated with using a shelter service to manufacture in a foreign country like Mexico are immense. 

Any company manufacturing in the US is right to enquire into the current state of IP protections in Mexico. Manufacturing in a foreign country carries with it certain risks and vulnerabilities, making it absolutely critical to understand what protections are in place and how they work.

Intellectual property laws in Mexico are handled differently than in the US. But the Latin American country has long pursued protection for industry and industrial property in an aggressive bid to grow manufacturing.  And two recent developments have further strengthened Mexico IP laws: the USMCA and the new Mexican Industrial Property Law of 2020.

The History of Intellectual Property Protections in Mexico

Mexico’s long track record of ensuring protection of intellectual property (IP) goes all the way back to the 1832 “Law on property rights for inventors,” which was later superseded in 1889 by the “Law of manufacturing trademarks” in 1889, the ““Law of Patents and Privilege” in 1890, and the “Law of Industrial Property” in 1943.

At first, the 1943 law was criticized for giving “exaggerated protection.” It has gradually been modified to bring it up to international norms. Eventually, these modifications came to be known as the 1976 “Law of Invention and Trademarks” until being overhauled in the form of the 1991 “New Law of Industrial property.” 

This law was later modified through international treaties like NAFTA and the later USMCA to protect designs, processes, and branding for manufacturers in Mexico in the present time. These protections encompass everything from patents to trade secrets to trademarks. However, last year, the Mexican government passed a new law to expand on these IP protections especially in the area of industrial protections.  

Mexico’s Newest IP Protections

The “Federal Law for Protection of Industrial Property” (“Ley Federal de Protección a la Propiedad Industrial”) took effect on Nov. 5, 2020. Below are some of the provisions.

Relating to inventions:

• Any substance, component, or composition is patentable, so long as its use is new.
• Several items are not patentable, including anything harmful of the public, people, plants, or animals; plants and animals, biological procedures for obtaining plants or animals; medical procedures; any part of the human body, including its genetic sequence. 
• Double patenting is forbidden.
• Patents registered with the Mexican patent office do not forbid third-party testing of drugs for human health.
• Utility models are now enforceable up to 15 years.
• At least every six months, the Mexican Institute of Industrial Property (IMPI) must publish patents related to inventions used in allopathic drugs.

Relating to trade secrets:

• Exceptions to misappropriation include independent discovery or creation, testing or disassembling a product either legally owned or available to the public, and legally acquiring information from a person without a confidentiality agreement.  
• Violations of trade secrets are now listed as causes of infringement.
• Parties suffering from violation of trade secrets are entitled to damages.

Relating to trademarks:

• Bad faith in applying for a trademark now includes doing so for the purpose of gaining an undue advantage at the detriment of the true holder of a trademark.
• Consent may be obtained to register confusingly similar or even identical trademarks for products that are similar.
• Validity for trademarks is now ten years from granting.
• A declaration of notoriety or fame does not require disclosure of confidential information.
• Linked trademarks may be unlinked when the holder determines there is no longer confusion between them.

Relating to Appellations of Origin:

• When a declaration is issued protecting an appellation of origin, it will enjoy a specific Official Mexican Standard.
• Legal entities may certify compliance of geographical indication rules per specific requisites.

Relating to enforcement:

• IP protections in Mexico may be enforced by any public or civil organization; IMPI may request assistance from any armed institution, whether federal, state, local.
• Goods in transit suspected of violating intellectual property or industrial property laws in Mexico may be stopped from proceeding in transit to customs.
• The IMPI may destroy any goods that are preserved as a cautionary measure in the case an administrative infringement or violation is declared. 
• Infringements may be penalized to about $1 million USD per unit up to 250,000 units.
• Counterfeiting is now defined as using a trademark in an identical manner or in such a way as to represent a good as authentic that is false or unauthorized.

IP Protections in Mexico Under the USMCA

The USMCA also further strengthened IP protections in Mexico. Updating these protections were a key component of the trade deal. Essentially, the new provisions raise Mexico’s level of IP protection to that of other countries like the US. Among the notable aspects of this historic agreement between the US, Canada, and Mexico, are the following:

• Damages for trademark infringement must be predetermined; Mexico currently imposes a fine of at least 40% of the revenue from infringing products payable to the damaged party.
• Mexico has ten years to establish a formal body of legislation for protecting biologics up to a certain time period; the country is expected to establish a protected period of about five years.
• The USMCA will require Mexico’s IMPI to allow changes and corrections to patent applications after examination.
• The definition of agricultural products must include protection for agricultural products that contain a chemical not yet approved for use in agricultural products, and protection must extend to ten years.
• Mexico will soon implement a notice-and-takedown system for ISPs servicing copyright safe harbors.
• Mexico has a short period to sign on to the UPOV 1991, the Singapore Treaty, and the Hague Agreement to satisfy USMCA requirements.
• Mexico is also working on providing civil remedies for trade secret thefts and protecting trade secrets during the litigation stage.

As Mexico grows into one of the most advanced manufacturing hubs in the world, protecting the trade secrets and industrial processes of the manufacturers doing business there is crucial. Mexico has a long history of enforcing strict protections and continues to pursue improvement. 

IP protections in Mexico are extremely thorough and strong. But there is room for the many improvements being made in the country’s legal and enforcement framework. US manufacturers nearshoring there will continue to find Mexico a secure location for strengthening their competitive manufacturing advantage.