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If you’re considering nearshoring to Mexico, you’re probably wondering how to go about it. Opening a factory in another country is sure to be a complex and complicated ordeal. It’s crucial to understand the various modes available to you.
While there are several entry models, shelter manufacturing in Mexico is the easiest and most popular. But how do you go about opening a factory with a shelter service? How does shelter manufacturing differ from other modes like contract manufacturing or opening a maquiladora? What are the pros and cons? And how quickly can you be up and running?
These are the questions we’re going to answer in this quick how-to guide for shelter manufacturing in Mexico.
Manufacturing in Mexico offers numerous advantages – from the deep labor pool to the extensive free-trade access to the proximity. The neighbor to the south has been a popular outsourcing destination for US manufacturers for several decades.
But how you enter Mexico is important to the goals you hope to achieve. Depending on the size and needs of your organization, you may prefer one mode of entry over another. But for most small-to-mid-sized companies, shelter manufacturing makes the most sense.
For several reasons, partnering with a shelter service can be key to your company’s success. Some of these reasons include:
In the 1960s, Mexico created the Maquiladora system that in the 90s blossomed into the full-fledged manufacturing powerhouse it is today. Under this program, known as IMMEX, Mexican-owned factories, or maquilas, manufacture goods for US companies with certain preferential tariff treatment. Under the NAFTA and later USMCA, this came to mean virtually duty-free import and export for most goods and inputs.
Another option for US companies to take advantage of Mexico’s manufacturing advantages is to place orders with contract manufacturers. This is a much shorter-term and flexible arrangement, but allows smaller companies a quick and relatively painless entry into Mexican manufacturing, albeit with less control. Manufacturers with varying demand for their products and a need for simplicity find great value in contract manufacturing.
But for those companies wanting maximum control and value, operating a maquiladora factory is the go-to. This option means owning and controlling a dedicated factory, operating within the Mexican legal framework and geography, importing inputs and exporting products virtually duty free over the US border. However, shelter manufacturing further simplifies the process and maximizes savings by shifting the administrative and legal load to a partner.
Partnering with a shelter company offers many advantages, primarily in administrative hassle, but also in cost. One way in which shelter manufacturing offers greater savings than a mere maquila is the VAT tax. Initially, maquiladoras did not pay VAT. However, in 2014, maquilas were required to post a VAT tax up front, which would be refunded six months later. Most shelter providers have a special certification that allows them to forego this deposit, saving your company up-front expenditure.
When entering Mexico with a shelter service, you must first settle on the kind of shelter services you require. Common services provided include among others:
As the legal entity in Mexico acting on your behalf, the shelter company you choose will greatly reduce the administrative side of your business. In turn, you will be free to focus more on the core manufacturing tasks that set your products apart. This division of responsibilities is an important aspect to nail down with your shelter provider. It’s important to understand just what all they are taking off your plate.
You should also do your due diligence before choosing the right shelter partner. Ask them key questions like:
Beyond this research and discussion, your company is responsible for little more than providing the working capital, training in your processes, and any specialized equipment your products require. As a turnkey solution, saying yes to a shelter instantly simplifies Mexico for you.
Reputable shelter manufacturers even provide step-by-step assistance in planning the move, weighing logistics and cost considerations, and arranging for you to see your new manufacturing plant as soon as possible.