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While many US firms understand the advantages of outsourcing operations, the specific benefits of contract manufacturing in Mexico are unfamiliar to them. Because there are a number of ways to lower manufacturing costs, it pays to explore all the different options to determine which is most advantageous for your particular situation.
When paired with the obvious advantages of manufacturing in Mexico, contract manufacturing is especially effective at maximizing efficiency and cost savings for companies within a particular set of circumstances. Let’s explore the pros and cons of contract manufacturing to better understand if this outsourcing option is right for your firm.
Since the 1990s and the protections of NAFTA, US firms have leveraged Mexico’s strategic advantages for manufacturing. The primary mode of manufacturing was through Mexican factories called maquiladoras. These manufacturing plants are unique in that they are incorporated under and subject to Mexican regulations, employ a Mexican workforce, but are owned by a US firm for producing exported goods.
There are many benefits and reasons US companies might want to utilize the maquiladora system to manufacture their products. Some of the more obvious benefits of manufacturing in Mexico include the following:
Maquiladora manufacturing allows mature companies with existing, established manufacturing facilities to transition to an outsource option to cut costs without losing oversight over day-to-day operations. Opening a maquiladora operation typically takes only around 90 days, and companies with the capital can have their own Mexican factory taking advantage of the country’s duty-free manufacturing for export.
But not every company has this kind of capital or is at this stage in the business life cycle. For early-stage or growth-stage companies with an existing product, it’s much simpler and convenient to utilize contract manufacturing or subcontract manufacturing. Essentially, a US firm may simply place an order with a contract manufacturer in Mexico, eliminating factory management entirely.
For the most part, late-stage companies prefer the control and long-term benefits of owning a Mexican maquiladora operation. Utilizing this option, they can manufacture most of their products at this plant. But for smaller or newer companies lacking the infrastructure or capital, contract manufacturing allows for more flexibility with less commitment. Contract manufacturing is a very low-risk, short-term investment for companies wanting a more cost-effective manufacturing solution.
Contract manufacturing in Mexico affords unique advantages over even the cost-reductions and flexibility of maquiladora manufacturing for certain firms. Below are some of the pros and cons of contract manufacturing to consider when evaluating Mexican manufacturing options.
If your company has demand for a developed product and a need for flexibility and speed, contract manufacturing in Mexico may be the perfect option for you. If you’re not quite ready to commit to a full-scale maquiladora operation, but are attracted to the many benefits of Mexico, these are the factors to consider in weighing options. Contract manufacturing is not for every company. But for many, it provides the perfect balance of speed, affordability, and flexibility.