In a recent podcast, CanadExport spoke with Brad Knight, an executive vice president and the managing director of Turnarounds and Special Situations at Riverwood Solutions, about the benefits of expanding to Mexico for Canadian manufacturers, and the specific options businesses have to do so. During the discussion, Knight explained that Mexico's distinct advantages of having a well-educated labor force and being right next the world's largest end market creates a short supply chain and a smooth logistical process. Yet to successfully manufacture in Mexico, Canadian businesses need to assess their options.
Shelter companies provide maximum benefits
Knight explained there are three ways to move the production process to Mexico: independently, through a shelter company or outsourcing the production process. Whenever considering such a significant change, Knight said manufacturers need to assess their future product volume needs, and the cost requirements to employ the number of workers needed to achieve those amounts and transport goods to end markets. Companies need to be extremely careful in how they decide to offshore their production process, but Knight explained there isn't a specific threshold manufacturers need to reach in order to begin thinking about expanding to Mexico.
However, they do need to take into account budgets and where resources will be allocated if they chose to either offshore independently, through outsourcing or through a shelter company. - especially if they are a smaller business. Canadian companies can risk the success of their expansion by pursuing independent offshoring, which not even largest companies are opting for.
"[W]hat's happened literally over the last 10 years is it's almost prohibitive to build your own facility unless you have some niche that few can help you with, and then you got to sort of go it alone," Knight said. "But there's less and less of that happening. Literally - because the larger players aren't doing that, it's almost impossible for the little guys to do that."
Knight said oftentimes, partnering with a shelter company is the most cost-effective, safest option for Canadian manufacturers. Businesses can purchase a specific amount of infrastructure and employee services, which keeps control with the manufacturer. By hiring and managing the manufacturer's workers, shelter companies take care of many of the challenges that come with offshoring to Mexico. And manufacturers are still able to do what they do best - produce high quality products.
Although Canadian manufacturers ultimately have three options to expand to Mexico, Knight suggested partnering with a shelter company is the best way to do so.