Nearshoring has become more attractive than ever as a means of achieving resilience and maximizing profitability. And as many US companies shift their attention back to North America, manufacturing in a Mexican maquiladora makes more and more sense, checking all the right boxes.
Relocating a supply chain can be a big step, but in light of the many advantages available right here in North America, most producers find the move to be right for them. And first-time outsourcers can set their companies up for huge success by starting out with a Mexican maquiladora operation.
So, let’s dive in and see what sort of benefits your company can expect and what it takes to capitalize on them.
A maquiladora is a Mexican corporation operating under the IMMEX program that provides for duty-free or near duty-free, temporary imports of machinery, equipment, and materials. It is often called a twin plant because it manufactures in Mexico in tandem with a US company providing administrative functions from within the US. This allows US companies to outsource cost-intensive segments of their production process and under preferential tax arrangements to maximize efficiency.
There are approximately 5,000 maquiladoras currently in Mexico, employing approximately 2.5 million people and generating more than $200 billion in annual revenue. And these numbers are growing, especially as those manufacturing in a Mexican maquiladora exploit shelter services to further simplify the process.
Nearshoring to Mexico via this option affords a litany of strategic advantages and benefits for North American companies. Below is a look at just a few of these reasons to manufacture in a Mexican maquiladora.
Product Flexibility
Mexican factories manufacture just about anything. Manufacturing in Mexican maquiladoras means access to virtually any components, materials, and requirements needed to assemble and produce whatever the customer base demands.
Low-Cost Labor Access
In spite of the rising cost of labor in China, the US, and most places in the world, Mexico provides access to a relatively stable cost of labor. And this labor pool is highly skilled and trained for manufacturing tasks. In fact, Mexico’s industry-focused educational institutions produce thousands of technicians and engineers specifically for manufacturing jobs.
Duty Avoidance
Another benefit of maquiladora manufacturing in Mexico is that US companies receive special import/export tax treatment. In most scenarios, under the IMMEX Program, producers may eliminate their entire VAT liability in addition to general import/export taxes for goods that come and go on a temporary basis. If the goods and materials are imported for the sole purpose of manufacturing goods for export, then they are exempted from duties. So, US companies can take advantage of all the raw materials, technology, and inputs from both their home country and Mexico without any additional taxes.
Global Free-Trade Access
One thing many do not realize about manufacturing in a Mexican maquiladora is that this gives them access to the most extensive free-trade network on the planet. Mexico’s FTA network provides preferential tariff access to over 50 countries and more than two thirds of the world’s population.
Proximity Savings
In addition to avoiding customs and VAT taxes on imported inputs and exported goods, maquiladora manufacturing in Mexico offers other savings advantages related to close proximity to the US consumer market. Integration in a highly specialized manufacturing cluster and industrial park along the US-Mexico border can streamline costs and maximize economies of scale in a massive way. Whatever shortages or market changes occur, changes in fuel costs, wars, etc., low-cost manufacturing mere hours from your target market affords incredible savings.
Are you considering a Mexican maquiladora operation? Where do you start? First, it’s helpful to identify the specific route you want to take. There are several ways to leverage Mexican maquiladoras, including purchasing a wholly-owned subsidiary, contract manufacturing, or partnering with a shelter service for optimum protection and process control.
If you decide to open a maquiladora of your own, be sure to compile all of the necessary papers and documentation for regulatory compliance. You’ll also want to familiarize yourself with the labor situation, workplace culture, and geography. Site selection is important to take advantage of Mexico’s state-of-the-art industrial parks and to ensure security and access. Managing a maquiladora can be quite daunting and complex, so consider partnering with a shelter service to take the hassle out and ensure success from the start.
