Mexico offers many options for manufacturers. Not every company in need of outsourced help wants to invest in opening a foreign factory. Yet contract manufacturing in Mexico affords many of the same benefits without the long-term commitment or startup hassle.
Nevertheless, it can be a daunting task to navigate the process of outsourcing to another country, even with something as simple as contract manufacturing. For this reason, we will explore the various aspects of this popular choice to help you better understand your options and what to expect.
Simply put, contract manufacturing is when one company contracts with another to manufacture components or parts on their behalf over a specific timeframe and for an agreed-upon price. Also known as subcontract manufacturers, these providers are essentially subcontractors or third-party providers. They provide the parts needed for a company to assemble their finished product, or they can manufacture the finished product entirely.
There are different kinds of contract manufacturing in Mexico:
Private Label
Under a private label manufacturing agreement, the contract manufacturer will deliver a finished product to the client’s warehouse for sale under their own brand. In this way, the entire manufacturing process is outsourced, and the client is free to focus on design, marketing, and other business considerations.
Individual Component
In contrast, a client can contract for the manufacture only of an individual component of the finished product. They may contract with other providers to manufacture the other components or manufacture some of the components, themselves. Further, they may assemble the finished product from contracted components, or this part of the process can also be contracted separately.
End-to-End
As in private label manufacturing, an end-to-end manufacturing arrangement involves outsourcing the production of a finished product. However, it leaves more control to the client company in regards to design, quality control, and other details.
Some of the many benefits of working with a quality contract manufacturer include:
The value of manufacturing in Mexico is well established. And many companies are looking for an entry into the competitive labor market south of the border. Yet contract manufacturing in Mexico is only one option. So, how do you know when choosing this option makes sense for your company?
When choosing a contract manufacturer, be sure to carefully consider the match. Not all providers are right for your operation. Choose the right contract manufacturer by:
Companies with demand for a developed product but lacking infrastructure to meet this need are smart to consider Mexico. The advantages of manufacturing in Mexico are numerous, whether through a maquiladora factory operation or simply through contract manufacturing.
But contract manufacturing enables companies the flexibility to meet changing customer demand rapidly and without the capital commitment required of a full-scale manufacturing facility in Mexico. These clients are not responsible for producing the end product. Instead, they leverage the contract manufacturing partner to source all parts, vendors, etc. The process is simple and stress-free.
While late-stage companies may prefer the control and long-term benefits of owning a Mexican maquiladora operation, smaller or newer companies may compensate for a lack of infrastructure or capital with contract manufacturing. Thus, they can enjoy more flexibility with less commitment, because contract manufacturing is a very low-risk, cost-effective, and short-term investment.
The learning curve is much shorter with contract manufacturing. And efficiency is maximized. Furthermore, US firms have no regulatory or compliance issues, because Mexican law places all liability on the contract manufacturer. And a company can have infinite scalability in a matter of weeks, simply by expanding the scope of work for existing agreements or opening up new agreements with contract manufacturers.
In this way, all the benefits of Mexico – from low-cost, skilled labor to global free-trade access to shorter transportations times – are open to the company that exploits this option. No new factories. No relocation to foreign territory. No staffing or sourcing concerns. Just instant results.
