Recently one of our long-term clients finalized with us a contract extension to expand the footprint of their manufacturing operation in central Mexico. It was their third such expansion, tripling their initial space since they
started with us six years ago.
The company, a midsized U.S.-based auto supplier, now occupies
more than 70,000 sq ft in Zacatecas, Mexico with my firm, Entrada
Group, a U.S.-based company that helps manufacturers set up operations swiftly and cost-effectively in Mexico.
Typically, when a client extends their contract, we send a press
release and help them spread the good news. But this client keeps
a very low profile. Any publicity would be a non-starter. To paraphrase his message to us: We trust you because you are honest and
good partners. At the same time, we are not necessarily eager to
tell everybody about how great things are going for us in central
Mexico. We prefer to keep that to ourselves.
Such sentiment is shared by many foreign manufacturers already
operating in central Mexico – they don’t want to let the cat out
of the bag about the benefits found
in the region, known as the Bajio.
For companies whose processes are
labor-intensive, cost reduction is
often paramount, and the Bajio deliv-
ers. In central states like Zacatecas,
Guanajuato, or San Luis Potosi, total
operating costs (direct labor, benefits,
utilities, HVAC, etc.) for well-managed
operations can be as low as $4.50 to
$7.00 per hour.
At the same time, other companies value location over low
operating costs. Some manufacturers must be close to the customers they are supplying. For example, U.S.-based Johnson Controls
recently went online with their new plant in Querétaro, where
they will produce molded polyurethane foam for automotive seats.
By Doug Donahue, Vice President, Entrada Group
Contract Manufacturing vs. Standalone vs. Shelter
Most manufacturers looking to set up in Mexico for the first time will consider three options: contract manufacturing,
establishing an independent operation, or starting an operation with the support of a shelter provider. The right choice
depends on your needs.
What To W
Look For When
Mexico M c
• A company shares design/prototype
with a contractor, who quotes a price.
• Contractor can swiftly start production.
• The client has limited control over
quality, with no input into staff, work
environment, facility design.
• Often problems are only identified after
product is delivered to the end customer.
• No guarantees of protection of
Independent Setup and Operation
• Typically only possible for global
multinationals due to prohibitive cost,
know-how, and time required.
• Companies setting up are on their own:
location selection, establishment of legal
entity, securing permits, and leases.
• Once in Mexico, the company is responsible for all ongoing operations and
associated risks: HR, compliance with
Mexican law, unions, payroll and tax,
maintenance, security, customs permits,
logistics, and warehousing…just to
name a few.
• The shelter model, so called because it
shelters the manufacturer from admin-
istrative burden, giving manufacturers
of all sizes a balance of quick startup
and minimal risk. Some providers, like
Entrada, allow manufacturers to retain
complete control over their operations.
• All-in-one shelter programs offer turnkey
solutions to companies including startup activities through to ongoing back-of-fice functions.
• The shelter provider oversees support
services, allowing the manufacturing
company to focus on quality production.
• The client has more options for flexibility and scalability, because the shelter-provider is responsible for expansion.