Yes, you will realize significant savings, in labor costs but there are factors to consider.
The following must be considered:
Foremost in your thinking should be the realization that moving your manufacturing or assembly operations to Mexico is not a panacea for a company that has significant internal problems. A small to medium size company that is financially stressed might not have the manpower, logistics and working capital necessary to make a successful transfer.
Good process documentation is a must. Cultural differences (e.g. Idiomatic expressions) may cause difficulties if the documentation is subject to interpretation.
Good labor and quality standards are very important.
To save considerable duty costs, Certificates of Origin must be presented for every part and piece of equipment that is to be sent to Mexico.
For material that will be imported into Mexico on a continual basis, all Certificates of Origin must be renewed each year.
There must be someone in charge of the transfer who is high up in the organization. Otherwise, this person’s wishes may not be followed.
There can be considerable resistance to this move at the lower levels of the organization, where people feel that their jobs are threatened. The person in charge must be a team builder as well as the “champion” of Mexico, and be able to defend Mexico if things go wrong. No matter who makes a mistake, there is the tendency to point a finger of blame southward. If left unchecked, this attitude will have a very corrosive effect on the success of the venture.
Depending on the circumstances, there could be a significant investment in duplicate equipment and/or inventory, so that the existing operation can wind down while the new Mexican operation increases production.
Initially, there will be considerable travel expense between the home office and the facility in Mexico. Other factors are how many shipments into and out of Mexico per week are required by your new operation.
Customs and freight can be considerable costs to a small company. We can help you with the cost analysis.
Your customers may demand that you go to Mexico so that you can timely supply their production lines in Mexico. Our shelter program will get you up and running very quickly.
Nogales, Sonora, Mexico is only sixty miles south of Tucson International Airport. Nogales is reached via Interstate 19, a four lane divided highway.
Crossing the border is comparatively rapid. It compares very favorably to Tijuana and Juarez. Our factories are ten minutes from the border.
Crime is very low in Nogales.
There are no unions in the Nogales factories.
The rental costs in our industrial park are very low.
For direct labor operators, you can save approximately $18,000/year per employee.
For production supervisors, Spanish speaking, the approximate saving is $12,000/year/supervisor.
For bilingual production supervisors, the savings is approximately $9,000/year.
For bilingual engineers the savings over engineers from the USA is 33%.
For seasoned, bilingual, Mexican plant managers, there are no significant savings and there may even be an increase in cost.
As the data indicate, there are significant savings at the direct labor level, but the savings decrease as the skill level grows. In our experience, the most successful assembly / manufacturing operations are those that have a high ratio of direct labor to support personnel.
One of the major problems with starting any foreign subsidiary is justifying the investment in infrastructure that is required to start and maintain a business no matter the size. If you anticipate that your factory population will be less than two hundred fifty people for the first two years in Mexico, then it is very difficult to find an economic reason to start up your own subsidiary. In addition, it now takes considerable time to set up a maquiladora in Mexico.
Obviously, if you are going to rapidly grow to a large size, or your large labor force will be level and you have significant experience in starting up foreign subsidiaries, you should seriously consider staring your own company in Mexico. If your labor force varies wildly due to fluctuating demand, that is another reason to use a shelter. During low volume periods, we can help by moving your excess workers to other clients that need workers. Naturally, the reverse situation will be advantageous where we can move excess workers from our other clients when you need people. We can't guarantee this but, in the past, it has worked for all parties.
We have been in business since 1980 and have the experience to help you realize your full potential for success in Mexico.
We will tell you without equivocation what our opinion is of your potential for success in Mexico. We would not want you to come to Mexico if we felt your chances for success were extremely limited.
We have incubator (shelter) programs and labor-value-added subcontract programs to fit your needs.
We have available factory space in our facilities.
We prefer to work with small to medium sized companies.
You can start with just one person! You don’t have to make a commitment to hire a large quantity of workers or a single other worker!.
We currently have programs that vary in population from two employees to two hundred fifty employees.
We are “hands on” managers. We are available at all times and are on-site on the Nogales campus.
We will be there to help you succeed.
First, there are a few companies that provide this type of service in Nogales but you must be careful that the company that you are talking with fully discloses all the costs. You must be aware of all the “Pass-Through Costs.” Taxes, fringe benefits, guards, janitors, Mexican Customs, US Customs, inter-border freight, logistics, in-plant maintenance are examples of “Pass-Through Costs” that can add up to a lot of money. If you find that out after you sign the contract, it could be a dangerous mistake.
If you are going to pick a company in the interior, evaluate the travel costs and time invested by your executives in getting there and back.
Also, it is much more difficult to make emergency shipments to and from the interior. Being on the border, we have no problem making emergency shipments on the same day and, sometimes, within hours.
Don’t believe the hype and slick marketing presentations. It may all be true, but be skeptical. Again, watch out for the “Pass-Through Costs.”.
You should visit the companies, see their facilities, and talk to their current and former clients. The company should be forthright in revealing costs. There should be no surprises!.
If you sign on with a reputable company, the costs of operating in one border city or another are not terribly different. Your choice of a city should be based on logistics, labor pool, living conditions, union activity and crime levels.
Review management style for a comfort index. We, for example, run a lean, no-frills organization. After all, we are here to save you money.
Review the contract. It should be clear and fair. There should be an escape clause that allows you to leave rapidly if you want (after paying previously stated termination costs).
Actually, we have started clients on the very first day! Those were obviously special circumstances, but it can happen with small operations.
We are assembling a large array of products such as: interconnects; connectors; optical switches/isolators; plastic irrigation valves; contacts; injection molded parts. What this means to you is that there is a reasonable chance that we already have permits with the Mexican government that may cover your materials and processes. In addition, we have the factory space. We have or can find personnel that can be your start-up cadre.
Here are the major tasks that you must do before you can get started:
You must do your economic analysis that determines the feasibility of this venture. We can help you with that, particularly in defining the “Pass-Through Costs.”
You must have a project 'champion' who is committed to the success of the venture. He must be high enough in the organization so that he can overcome points of resistance. There will be inertia, resistance, and hostility to this venture within your organization.
You must have accurate bills of material, processes, standards and manifests.
You must have Certificates of Origin (US Customs form 434) that cover all your materials and equipment. We can help you with those.
Your “champion” must be accessible because there will be problems and the “champion” will be asked by us to help in the solution.
Depending on the level of difficulty of the tasks, you should have technical staff available to train the Mexican personnel either on-site or at your stateside facility.
If your product is an existing one, then you should consider building an inventory position before moving the equipment or considering buying additional equipment, tooling and material for the Mexican venture.
We are conservative people and recommend starting small then growing at a controlled but aggressive rate.
The answer comes in three parts: I. Operations, II. Living Conditions for Foreigners, and III. Security Conditions.
I. Operations. We are conservative managers and have learned our jobs the hard way. We firmly believe in Murphy’s Law and in K. I. S. S. From an operational point of view, here are the problem areas to watch out for:
The processes have to be stable, correct, written and clear. The processes have to be translated (we can help do that). If the processes are not clear in English, they surely won’t be clear in Spanish. If a product’s process is not stable, then it should not be moved to Mexico, unless you plan on having a lot of engineering support on site.
As a culture, the Mexican people are very polite and don’t want to risk insulting a foreigner by saying “I don’t understand what you want me to do.” As a result, a common error a foreigner makes is that he thinks he has communicated successfully when he hears the reply “Yes” to his question “Do you understand?” The proof is in the results and the foreigner must stick around long enough to actually see repeatable success.
If you plan on managing the operation directly, a full-time immersion Spanish course is recommended.
You must have Certificates of Origin for all of your components (US Customs form 434). Your vendors must do this for you. We can help, but it is their responsibility.
You should try as far as possible to find sources for your components in NAFTA countries. Mexico may charge duties for non-NAFTA material. If the product is not in electronics or automotive, there is a chance that any foreign material that goes into that product will be dutiable. E-mail us and we will tell you if your product falls into a dutiable sector.
II. Living Conditions for Foreigners.
Virtually 100% of the foreigners (non-Mexican nationals) live in Arizona.
Most professionals and management personnel live in Santa Cruz County and Pima County.
III. Security Conditions (a delicate subject that must be discussed).
•Crime is a consideration in Nogales, Sonora, but the level is much lower than in Tijuana and other large cities on the border and in the interior of Mexico.
• All valuables that are portable should be secured as you would in the USA.
• The client is required to have his/her own security procedures within his area.
Yes, the labor law is restrictive in comparison to U.S. law, but once the restrictions are understood, your method of operation can be successfully modified. Here are the major restrictions:
Once an employee is hired and punches his time card for work, he is guaranteed a day’s wages. If you run out of material or a machine breaks down, you can’t require that the employee punch off the clock. Most clients make sure that the Mexican operation has a steady flow of material. However, we do have one client that builds to order. This client budgets downtime as a part of normal operations.
If you must layoff an employee, you must pay the employees three months salary and, additionally, approximately one half a month’s salary for every year of seniority. That rarely happens, because we negotiate with the employee or transfer the employee to another client that is looking for workers.
If you must fire an employee and expect not to pay the above-mentioned severance pay, you must detail and document an employee’s violations and communicate with our personnel office before you do so. We will guide you through the process.
By working with our personnel office, you can legally mitigate these restrictions. We find working with the Mexican people very rewarding.
For the Maquiladora industry, the answer is a definite “NO”. We follow all U. S. EPA and OSHA rules dealing with the workplace. There are three Mexican regulatory agencies that inspect us on a regular basis. Do not go to Mexico thinking that you can skirt the safety and environmental regulations of the U. S. A.
After all this commentary, we hope you realize that the rewards in Mexico fall outweigh the restrictions. We are here to help you. There probably isn’t an ideal country or location for all your needs, but after honestly weighing the factors, Mexico and particularly Nogales, Sonora should be looked at as an attractive place to do business.
