News, Insights and Best Practices for Manufacturing in Mexico

Newshoring a great way to manufacture in Mexico

14 Feb 2014

Category: Manufacturing in Mexico

Offshoring used to be a risky endeavor in which companies would ship their manufacturing to a far away country with expensive transportation costs, according to Manufacturing.net. Additionally, it used to mean that while the margins were better, there was an increased risk of poor-quality products.

Those times have officially changed, according to the source. Facilities are better than they used to be. In Mexico, the equipment for building products is state of the art, and the personnel who work in the factories are part of an educated labor force that works hard for an affordable wage that will keep companies lean and efficient.

The question presents a number of choices for businesses: offshore in a place like China where products will still ship from far away or expand to Mexico.

"Here's the short-term view," explains Victor Wong, CEO of Austin-based company Music Computing. "Overseas manufacturing makes great sense. We get to produce products for 10 cents on the dollar, we get great quality, and we don't have to pay for insurance. It comes to the States, and we can sell it at a lower price than our competitors, or at the very least we can compete at the same pricing level as other people who manufacture overseas. The long-term view is… never ever do that."

The reason why you shouldn't expand overseas is in places like China, your intellectual property is at a greater risk, according to the source. It's so bad that the Office of the United States Trade Representative will "again make intellectual property rights a top priority in trade relations with China in 2014." It's because the system is so dysfunctional that so much effort needs to be made by the U.S. government to clamp down on it.

In Mexico, the laws are already stricter, and U.S. companies are so close to the Mexican border that going to the factory to see what's happening is easy, according to Inc. Magazine.

Newshoring

One way of manufacturing in Mexico and still being able to have a "Made in the USA" sticker on your product is to build the miscellaneous parts of a manufactured object outside the U.S. and then bring the parts together and assemble them in the U.S, according to Manufacturing.net.

"It's the Wild West out there," Wong said. "Make enough money to stay in business, and produce it close to you to handle emergencies or changes. Once you're up and walking — not running, walking — then you can start optimizing your cost and your supply chain. Of course, the real secret is to make sure the product is unique. Then you can rely on that newness to demand a premium for it, which will offset your cost of having to produce it here in the U.S."

Another benefit to building in Mexico and finishing construction in America would be the North American Free Trade Agreement. This has been an enormous benefit to Mexico and U.S. trade because it virtually eliminates tariffs. After the NAFTA agreement came into place, Mexico became the 3rd biggest exporter to America, according to Banderas News. Additionally, the U.S. is the biggest source of foreign investment in Mexico.

If a company has trouble with all the red tape that comes with building a competitive manufacturing site in Mexico, it might consider a Mexico shelter business. Such a business will do all the work for the manufacturing company, leaving it to simply continue its job.

 

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