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If you’re involved in manufacturing, it’s worth considering the benefits of working with a Shelter Company in Mexico. With low labor costs, access to a skilled workforce, and open trade agreements, Mexico is a great place to invest in manufacturing endeavors. And if you’re serious about establishing a manufacturing presence in Mexico partnering with shelter companies can provide an alternative to the expense and logistics of investing in a standalone company.
Shelter companies in Mexico provide special benefits and resources to foreign manufacturers through Mexico’s IMMEX program. Perks of working with a shelter company in Mexico include reduced risk and liability, quicker start-up times, and access to a skilled workforce. There are important considerations to make when choosing a shelter company to work with.
Our complete guide below will provide you with all the information you need to decide if working with a shelter company in Mexico is right for you.
Table of Contents
Shelter Companies are nothing new. In fact, they’ve been around since the ‘60s. But they have exploded in popularity since the early 90’s with the introduction of NAFTA and the growing globalization of the Mexican economy. They are legal entities which allow foreign manufacturers a quick and easy way to establish a manufacturing facility in Mexico without the expense and complication of having to set up a legal presence in the country. Shelter companies are fully established and registered with the Mexican government, and are a great way for companies to reap the benefits of manufacturing in Mexico without the spectre of legal liability hovering over their operations.
Manufacturers can still operate under their own name and implement their own rules and policies and ensure that the standards inherent in their brand are maintained. All while getting up and running in a much shorter time frame than starting from scratch.
The shelter company can even help address common pain points for manufacturers outsourcing overseas. For example, they can help with recruiting, screening, and hiring laborers while also ensuring that your business is compliant with Mexican labor laws. Manufacturers with experience outsourcing production to other countries can attest to the challenge in these tasks.
Shelter Companies in Mexico can also help you to locate, lease or purchase the necessary real estate for your business. They will even register with local, state and federal governments as importers-exporters. This means you have no trouble with your supply chain as you import raw materials and manufacturing technologies, then later export your finished products.
Quite simply, they not only give you the inside track in establishing a presence in the country. They help set you on the path to success.
Shelter Manufacturing has been a part of the Mexican economy for quite some time. But their popularity exploded in 1994 with the approval of the North American Free Trade Agreement (NAFTA). This agreement opened up trade lines between the United States, Canada and Mexico by eliminating the barriers to free trade (like prohibitive tariffs) between America and its closest neighbors. The agreement also removed the restrictive quotas which had previously prevented the sharing of markets between America and Mexico, while allowing American businesses to manufacture products without the restrictive limitations through Shelter Companies.
It wasn’t long before manufacturers started to realize the benefits of doing business through these Shelter Companies.
As more and more companies began to realize the benefits they could reap from the loss of restrictions and tariffs and the generous tax incentives, this led to a renewed interest in outsourcing their manufacturing operation to Mexican facilities. While not all companies with manufacturing presences in Mexico are facilitated by Shelter Companies, some of the most well-known brands in the country have used this system to relocate their operations to the south.
Even outside of the benefits of setting up manufacturing operations in Mexico through sheltered programs, there are inherent benefits in Mexican manufacturing. All brands want to reduce overhead costs without sacrificing the product quality upon which they’ve built their brand. Setting up factories in Mexico allows them to do exactly that.
Mexico is an industrious country with a huge skilled workforce of 47 million people to whom US companies can gain access. Skilled labor has been one of the main focuses of Mexico’s educational systems for many years now. However, a renewed emphasis combined with growing interest in Mexican talent from overseas operations has resulted in a substantial boom. Mexico’s government has become highly proactive in training young people to fill skilled roles in areas that are vital to Mexico’s place in the global market.
Chief among these is manufacturing. What’s more, private industries and universities have combined to provide young Mexican workers with a wealth of vocational training programs building on European apprenticeship models which have previously proven successful.
The net result for businesses?
A combination of skilled yet affordable labor as well as generous tax incentives and an often tariff-free supply chain.
If you’re considering offshoring your manufacturing operations to Mexico, you’d be in excellent company. Many of America’s (and the world’s) most well known and trusted brands have manufacturing facilities in Mexico.
With such a wealth of affordable skilled labor, ample facilities and the wealth of benefits available under Shelter Companies in Mexico, it’s no surprise that the factories of some of America’s most notable brands have opened their doors there in recent years.
Some of the most well known companies to establish factories in Mexico include;
All of these widely trusted brands have found great success moving their operations to Mexico while maintaining the same high standards that their customers have come to expect from them. One of the most common pain points when moving operations overseas is the difficulty in ensuring consistent product quality and maintaining the integrity of the brand. If these titans of some of the most competitive industries on the planet have found success in Mexico, it’s probable that your business can as well.
Americans are often surprised by how many of the items they use and come into contact with every day are actually made in Mexico. The world of Mexican manufacturing has become highly diversified in the wake of NAFTA. It now encompasses some of the world’s biggest brands. Since then, the manufacturing landscape has become even more diverse with everything from beer and toothpaste to phones and TVs made in Mexican factories.
However, despite this diverse landscape, there are many industries which have formed an integral part of Mexican manufacture. These include:
In many cases, yes. When companies combine the benefits of Shelter Companies in Mexico with the inherent attractions of the highly skilled Mexican workforce and efficient manufacturing infrastructure, they can experience significant savings.
Manufacturing in Mexico can even be more cost effective than manufacturing in China, especially when considering political issues. Tariffs on Chinese imports are more prone to dramatic increases. This isn’t to say that Mexico and the U.S. will never experience political tension, however, it’s less likely to occur.
Here are some of the reasons why manufacturing in Mexico is highly cost-effective.
The Maquiladora Program is the mechanism by which Sheltered Companies in Mexico function. A Maquiladora (which translates roughly to “bonded assembly plant”) is a Mexican assembly plant where materials and equipment are imported by companies north of the border on a tariff and duty-free basis. Maquiladoras receive raw materials from companies in the U.S. which are assembled on Mexican soil and exported back to the U.S. as finished products.
Maquiladoras, also known as maquilas, are usually owned by U.S. companies, although some are owned by interests in Asia and Europe as well as native Mexican companies. These businesses have been incentivized to build Maquilas to stimulate the economy in Mexican cities (originally in border towns) in return for operational savings. This was a program developed by the Mexican government to allow foreign businesses to ship raw materials, parts, and machinery to Mexico duty-free in most cases.
The program was originally designed to give the ailing Mexican economy a shot in the arm and provide jobs and infrastructure for Mexican workers living in the border towns. Under NAFTA, however, the tariff exemptions helped to spread the manufacturing economy throughout Mexico rather than confining it to a handful of border towns.
Prior to NAFTA, there were approximately 2,000 Maquiladoras established across mexico, employing 500,000 workers. Since the implementation of NAFTA, that number has grown to more than 3,000 maquiladoras housing over a million Mexican workers.
While Maquiladora have diversified somewhat in location since the mid ‘90s, they are still mostly found in the Mexican border states of Baja California and Chihuahua. There are some dotted around less populous border towns like Coahuila, Nuevo Leon, Sonora, and Tamaulipas. Most Maquiladora, however, are to be found in Tijuana, Mexico and Ciudad Juarez and Matamoros.
Like most business propositions, Maquiladoras represent both benefits and challenges for Mexico and its workforce.
There can be no doubt that the Mexican economy is highly dependent on Maquiladoras as they represent over $7B in overseas investment, hire more than a million workers and are responsible for 65 percent of the country's exports. Data from IMMEX Maquiladoras National Association estimates that around 80 percent of Mexico’s workforce is employed by foreign-owned factories.
In their early years, some Maquiladoras had highly adverse working conditions and many, especially those in the garment industry could have been considered sweatshops. Before stringent regulations were in place, it was possible to see workers earning less than a livable wage.
In the wake of NAFTA, however, things began to change steadily, with Mexican workers getting a fairer deal, while still enabling their foreign owners to reap significant benefits in terms of profitability. Foreign investors began putting more money into their operations, not only ensuring that their workers enjoyed better wages, but benefitted from better working conditions in more modern, suitable facilities.
However, in order to secure a better deal for Mexican workers (and we all know that happy and well taken care of workers are more productive workers), there are other macroeconomic factors that need to be considered. The devaluation of the peso has meant that worker’s wages provide less buying power (in some cases, it takes Maquiladora workers over an hour to earn what a U.S. minimum wage worker makes in 10 minutes). Additionally, the cost of living in border towns in typically much higher than other parts of Mexico.
The economic law of Marginal Propensity to Consume dictates that when workers have more disposable income, they’re able to feed it back into their local economy, meaning that local businesses and the greater national economy benefits. What’s more, in an age of increasing ethical awareness, today’s consumers expect brands to treat their workforces ethically whether at home or overseas.
Thus, it’s up to foreign maquiladora owners to ensure that their workers are well compensated and taken care of. Before establishing manufacturing operations in Mexico, this is a vital conversation that should be had with prospective shelter companies.
One of the things that makes the Maquiladora system so advantageous for foreign companies is how quickly they can get up and running under a Mexico shelter service. Because foreign interests have full customs compliance assurance, assistance finding and securing real estate, assistance recruiting and a highly skilled and motivated workforce, they can get started quickly.
It’s worth nothing that your company's mileage may vary, depending on the industry you occupy, the corporate structure of the operation, and the volume and type of raw materials and equipment required. With that being said, it can take anywhere between 8 weeks and 6 months for your Maquiladora in Mexico to become fully operational. 4-6 months is a realistic estimate for companies involved in heavy manufacture while simple assembly plants can easily get up and running within 12 weeks. Once again, this is even more realistic when operating under a shelter company.
There are many advantages to manufacturing with a Maquiladora. Learn more about Maquiladora tax benefits.
So, now that we know a little more about Shelter Companies in Mexico, how they work and how they can benefit both foreign companies and the Mexican workforce, let’s take a closer look at some of the benefits for operations like yours.
Get up and running faster
The beauty of sheltered companies is that they are designed to address and counteract the traditional pain points associated with going it alone. With help and support in every aspect of relocating your manufacturing operations to Mexico you can be sure of starting quickly. You’ll encounter fewer bumps in the road and far less transportation costs moving your raw materials and equipment across the border.
Tax incentives
Foreign companies manufacturing their goods in Mexico enjoy a range of tax benefits under shelter companies. For starters there is no Mexican income tax duty and owners of factories that are part of shelter companies do not need to deal directly with Mexican tax and regulatory bodies. The import and export process is also duty free resulting in significant tax savings when compared to offshoring to Asian countries like China.
Experienced recruiting
Great businesses are made by great people. And that applies not just to executive leadership but the hard working men and women working their magic on the factory floor. While Mexico has a highly proficient manufacturing workforce, finding the right people for your brand can still be a challenge. The great thing about Shelter companies is that they are highly experienced at recruiting in the local market and can ensure that you begin operations with a full complement of the kind of workers that will meet your needs. They take the hard work and the guesswork out of finding, training and retaining the right people.
Ensured market wages and benefits
Happy and well cared for workers are invariably more productive than those who are poorly paid and don’t receive benefits. And this loss in productivity will usually offset savings made by paying employees a meager wage. Under the guidance of shelter companies in Mexico, foreign companies can ensure that their employees get fair wages proportionate to the market as well as the benefits that will ensure they stay with you at the expense of your local competitors.
Expert response to maintenance and utility issues
Maintenance and utility issues can impact heavily on operational efficiency and in some cases they can even result in profit-sapping downtime. Shelter companies provide expert response to these issues to mitigate their effect on your operations and your profits.
Easy compliance and reporting
Compliance is a huge issue for those within the manufacturing sector. Not only do shelter companies provide full customs compliance and assurance in importing raw materials and equipment as well as exporting finished products, they also assist in other aspects of compliance, too.
In fact, all aspects of Mexican government reporting is taken care of by highly knowledgeable professionals within the shelter company. This allows you to focus on doing what you do best.
Shelter companies add even greater value to the inherent advantages to manufacturing in Mexico. While we’ve touched on some of these earlier, let’s take a closer look at some of the advantages of manufacturing in Mexico.
Highly cost effective
Compared with expected manufacturing wages in the U.S., Mexico has a significant advantage. Right around $4/hour is difficult to beat. While China and other manufacturing countries might offer comparable wages, Mexico’s is less prone to fluctuation.Transportation and logistics play a significant role when it comes to considering costs as well.
A highly skilled workforce
They may not be expensive, but that doesn’t mean that Mexican workers can’t bring significant value to your operation. With over 60 years of manufacturing experience, you’ll never struggle to find skilled workers in the Mexican labor pool. And because shelter companies take care of labor union relations and negotiations, you’ll know that you’re always getting the best out of your workforce.
Close physical proximity
Mexico is (relatively speaking) just around the corner from the US. This means that it’s much faster, easier and cheaper to send raw materials and received finished product from factories on American soil than if manufacturing operations are offshored to China. In many cases, goods assembled in Mexico can reach customers or warehouses in the United States within hours rather than days.
Reduced trade risks
Physical distance isn’t the only way in which Mexico and the US are close. They have a long history of stable relationships and cooperation. When you choose to manufacture in Mexico, you protect your operation from a lot of the risks which can plague manufacturing operations in regions with less stable economic and political relations with the US.
By now, you hopefully realize the potential benefits of a good relationship with a shelter company in Mexico. And with so many in the market that have a presence all over the country, it’s easier than ever to find one that’s a good fit for your business.
As with any business partnership, you should do your homework before committing to a working relationship with a shelter company. First, let’s look at the different types of shelter companies and how they might align with your needs.
Because there are so many different versions of the shelter concept, it’s important to ask the right questions so that you know you’re comparing like for like quotes between Mexican corporations. This is why there is a large variation in costs represented by different outfits. Knowing exactly what you’re getting prior to starting a relationship with one of these partners can help ensure that you get all of the rewards while bearing none of the risks.
Some key questions include:
Regardless of which shelter company you decide to work with, you’ll need a reliable logistics and transportation partner you can trust. While shelter companies in Mexico bring a range of benefits, if your transportation and logistics services are inefficient, those benefits can be lost. We are a leader in reliable freight shipping between the U.S. and Mexico. Our 3PL services provide complete coverage for the entirety of your supply chain. So, whether you have a one-time straightforward cross border shipment or multiple loads per day that require warehousing and fulfillment services, we’ve got you covered.
Our reliable Mexico cross-border shipping operations will help ensure that your manufacturing operations in Mexico flow smoothly for optimal efficiency and profitability. Give us a call at (866) 335-0495 to get started.
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