February 3rd, 2014 — Recently, PepsiCo Inc. announced their intention to take advantage of the benefits offered by turning to Mexico manufacturing.
The company plans to invest five billion dollars over a period of five years into their operations south of the United States border. More than 35 percent of PepsiCo’s revenue comes from ventures just like this one. Placing a firm foothold into emerging markets allows PepsiCo to create a wider base for market share. In addition to increasing productivity for the company, this latest move will create more than 4,000 jobs for the local economy in Mexico.
In so doing, PepsiCo is following a long pedigree of companies that recognized the fiscal and logistical benefits of engaging in production activities in Mexico. From reduced labor and shipping costs to the lure of sustained economic growth, Mexico promises a wealth of advantages not realized from other emerging markets. The Mexican government has made itself very friendly to foreign manufacturers who seek to gain a foothold in its markets by creating a range of innovative programs.
The Maquiladora Program (IMMEX)
The 1960s saw a rapid influx of American companies into Mexico, all eager to take advantage of newly passed regulations allowing firms to engage in manufacturing in Mexico with vastly reduced duties and taxes. With the combination of reduced labor costs and other economic incentives, companies exported their raw materials to their Mexican production plants for assembly. Called the “Border Industrialization Program” and known colloquially as the “Maquiladora Program,” companies benefited from this proximity to their American production plants and the reduced cost of both shipping time and money that it entailed.
Mexico manufacturing has continued to be an attractive alternative for American companies decades later. There is a highly skilled workforce available for all phases of the manufacturing process, and labor costs in Mexico are comparable to that of China but with the added benefit of its proximity to the American market. Furthermore, Mexico’s advanced intellectual property and patent laws make it that more attractive to manufacturers, especially in more advanced industries.
There are several ways companies can set up a successful manufacturing venture in Mexico. In addition to methods such as wholly-owned subsidiaries or joint ventures, an option known as “sheltering” can allow companies to retain full control of their production and quality assurance in Mexico without legal exposure and liability. Shelter companies in Mexico, such as North American Production Sharing, Inc. (NAPS), enable manufacturers to focus their energy on the manufacturing process, leaving details such as human resources, customs compliance, accounting, environmental, and government compliance in the hands of expert administrators.
This option produces a myriad of benefits, from more streamlined production processes to a reduction in overhead costs. It allows companies to produce a superior product using a highly skilled workforce at significantly reduced costs while encouraging conditions that lead to sustained growth and profitability. Mexico manufacturing is an option that promises companies a very bright future.