Manufacturing Site Selection Process in Mexico
October 2, 2020
Are you considering moving your company’s manufacturing to Mexico to enjoy the advantages of a skilled labor force, lower turnover rate, and cost-savings? Once you’re familiar with USMCA pros and cons and have assessed other benefits of doing business in Mexico, the next step is selecting the right manufacturing facility to produce your goods.
Like all business owners, your goal is to find a site where you can manufacture products in line with your specific needs in terms of cost, quality, and product type. Whether you aim to partner with an extant facility or build your own from the ground up, a number of factors can affect your cost, timeline, and liability while doing business in Mexico.
In this short guide, we’ll go over the major factors to be considered in site selection.
How Your Product Impacts Site Selection
To produce your products effectively, you’ll need a location that meets the following three business site selection criteria:
- The right infrastructure to deliver goods in line with your company’s production calendar
- A suitably trained, cost-effective labor force
- Adequate security
The best site is highly dependent on your industry. For instance, Mexico is now a go-to region for manufacturing in the following sectors:
- Medical devices
- Aerospace and Aviation
- Consumer products
Though just because a city is popular in one industry, there’s no guarantee all industries can flock there and thrive. While a city may be home to several auto manufacturers, that may not make it a natural fit for producing electronic products.
To ensure you meet these three requirements, you have several options for your location decision, each of which has pros and cons. These include:
- Contract – You could choose to contract your manufacturing needs to a factory that already produces goods similar to those you need. While this has the advantage of speed, your partner’s other clients may demand their time and attention, delaying the manufacture and shipment of your products.
- Lease – It’s also possible to find existing commercial space that meets your needs. While it can be more costly to start the operation, local engineers and project managers can ensure the space and team are designed in line with your requirements.
- Build – In some cases, you might require a specialized space or enhanced security. Building from the ground up creates a longer runway but ensures all your specifications are fully met.
Next, let’s take a closer look at the three criteria that will shape your choice.
1. City and Logistics
The streamlined trade between the U.S. and Mexico can lower the time it takes for goods to go through shipping and customs. However, delivery times can still vary considerably for products in different industries. That’s why it’s critical to choose sites that capitalize on short delivery distances.
For this, there are two main manufacturing regions in Mexico:
- The Border Region – Tijuana, Juarez, and Mexicali have long been home to U.S. manufacturing. The border region’s long-standing infrastructure and close proximity to the U.S. make it a reliable choice for manufacturing in many industries.
- Central Mexico (Bajio) Region – With aerospace and auto manufacturers moving into Central Mexican cities, tier two and three suppliers are setting up shop in the region—making it another attractive locale for manufacturing.
2. Labor Force
Mexico is known for its highly-skilled, cost-effective labor force. Manufacturing companies can leverage engineers, supervisors, and professionals at every level of business to ensure their operations run smoothly.
Thus, once you’ve isolated a few locations, find a match in the labor force in terms of:
- Skill – Does your product require specialized training to produce? Are local workers unskilled, semi-skilled, or skilled direct workers? While skilled workers are more costly, it helps ensure you won’t encounter delays at the quality control stage.
- Compliance – If you’re partnering with a contractor, ensure the business site is in full compliance with labor provisions in the USMCA trade agreement. If leasing or building your own manufacturing location, use a local manager to ensure full compliance.
Not sure how to go about this part of the discovery phase? Partnering with an experienced manufacturing specialist (like NAPS) can help you streamline the workforce and compliance at your future business site.
3. Security of the Specific Site
With these first two factors—city and labor—you should have your optimal location search narrowed down. The next step then is to locate industry real estate with adequate security.
While there is a long history of safe manufacturing in Mexico, companies can always face security threats. Think cyber-attacks, equipment tampering, or even theft. It’s essential to protect your company’s assets while manufacturing abroad.
If partnering with a contractor, research their history and prior insurance claims.
Additionally, to find the right site to lease or buy:
- Conduct surveys of several industrial parks
- Identify buildings as well as available land parcels
- Examine purchase agreements and see where you are and aren’t protected
Doing so will familiarize yourself with the most suitable industrial parks Mexico has to offer.
Operating in Mexico can come with some liability risks that may affect your business’ costs, like higher insurance rates. For this reason, you may also choose to do business under “shelter”—that is, under a Mexican corporation.
Establishing a shelter company in Mexico can help you to take advantage of NAFTA and USMCA provisions without taking on legal liability in Mexico.
Unique Solutions for Unique Businesses
If your business plans to move its manufacturing processes to Mexico, turn to the expert site selection project consultants in Mexico to help you navigate unfamiliar terrain.
NAPS’ long history of work and connections in Northern and Central Mexico give us the expertise to walk clients through every step of the site selection decision process, from understanding their potential savings to finding the right business site.
Contact us today to learn more about how you can save by transitioning your manufacturing facility to Mexico.
Business Xpansion Journal. Ten Considerations When Choosing a Site for a Manufacturing Facility. http://bxjmag.com/ten-considerations-when-choosing-a-site-for-a-manufacturing-facility/