News, Insights and Best Practices for Manufacturing in Mexico

Mexico Shelter Company vs. Stand-Alone “Greenfield” Manufacturing Facility

27 Feb 2012

Category: Manufacturing in Mexico

When determining how to begin manufacturing in Mexico, companies often labor in deciding whether to do so by establishing a wholly-owned subsidiary of their company in Mexico or by partnering with a shelter company in Mexico. A shelter company is a service provider in Mexico that enables a manufacturer to send its raw materials, equipment and manufacturing know how to Mexico in order to set up and completely control their production and its ensuing quality.

Shelter companies in Mexico typically handle the functions that, although critical to a company’s success, are not core to manufacturing or its value added.

Shelter companies in Mexico typically handle things such as:

• Human resources management

• Worker payroll and benefits administration

• Mexico import and export management

• Tax and fiscal compliance issues

• Compliance with environmental laws and regulations

• Purchase of MRO items

The advantages that shelter companies in Mexico offer to manufacturers include:

• Instantaneous access to international expertise – As soon as a manufacturer signs a contract with a shelter company in Mexico, the manufacturer has instant access to a team of professionals that can immediately begin to go to work in the areas cited above. This translates into a quick start-up.

• Reduced capital investment and legal commitment – Some Mexico shelter companies own their own real-estate, while some work with third-party landlords to offer their clients rented space. Renting space, rather than purchasing or building an industrial building, allows manufacturers to utilize capital in activities that increase the bottom line. In many, if not most instances, using financial resources in this way is preferable to sinking them into a fixed asset. Most shelter companies in Mexico will go year to year on both the contract for shelter services and the rental of industrial space.

• Diminished vulnerability to key employee turnover – When operating under a shelter company in Mexico, as we’ve already seen, many critical functions are performed by the service provider. In times when payroll, human resource, import and export staff, etc. leave and need to be replaced, it is the responsibility of the Mexican shelter company to make sure that staffing in these areas is sufficient and of the quality necessary to deliver service seamlessly. Manufacturers do not have to preoccupy themselves with staffing issues that are not related to production. This leaves more time to focus on the mission: making and delivering a product to market that is competitively priced and of excellent quality.

• Increased operating leverage – As a company grows and ships more product, it not only has to staff up in the production area, but also has to do so in the areas that handle non-core functions. A company that grows in employee numbers will, perhaps, need to contract more human resource personnel, accounting help, procurement staff or customs paper processing clerks. A firm manufacturing in Mexico has a stand-alone, will bear one hundred percent of the costs associated with this set of circumstances. On the other hand, a manufacturer that partner with a shelter company in Mexico will often not have to absorb this cost. As its clients grow, shelter companies in Mexico can provide benefits in terms of economies of scale that this growth engenders.

• Capacity to navigate local business and political culture – Shelter companies in Mexico are familiar with the country and with the communities in which they do business. In many instances they are able to access things and people, and get things accomplished that would be very difficult for a mid-sized foreign manufacturer to do.

• Total focus on profit making activities – The most important value-add that shelter companies in Mexico offer to their clients is the ability to focus totally on their core manufacturing functions and mission. Anyone that has run a manufacturing plant in a stand-alone situation knows from experience that much of his or her time is consumed by activities that have little or nothing to do with the fabrication of their company’s product. A shelter company takes these extraneous things off of the plant manager’s plate.

Manufacturing in Mexico can be achieved in several ways. Two such methods of entering the market are by operating as a stand-alone foreign wholly-owned subsidiary, and through a partnership with a shelter company in Mexico. The latter enables manufacturers to focus on those things that matter in a competitive marketplace.

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