News, Insights and Best Practices for Manufacturing in Mexico

Shelter companies are cost-effective for US businesses

14 Aug 2013

Category: Logistics Management, Manufacturing in Mexico, Politics & Regulations, Taxes & Finance

Mexico has become a top destination for U.S. manufacturers to offshore their operations. While businesses have many options when they choose to expand to Mexico, shelter companies offer the most cost-effective benefits. Establishing low-cost operations in Mexico can be done through contract manufacturing, independent operations or the shelter model, with the latter offering the maximum number of advantages for manufacturers. 

The attraction of shelter services
Offshoring the fabrication process south of the U.S. border can be difficult to do independently. Shelter companies provide businesses with the advantage of not having to worry about finding qualified staff, where to center the production process or import-export management.

According to Manufacturing.net, contract manufacturing, or outsourcing the production process, is one way to expand into the country; however, it presents numerous challenges. Since the company will have no input into employment, the working environment or the factory layout, the business runs the chance of losing their intellectual property. The outsourcing approach takes manufacturing control from the business and puts it in the hands of another company. With outsourcing, the manufacturers only learn about quality control problems after the fact. Instead, outsourcing alternatives like shelter companies allow businesses to stay in control of the operation while still receiving optimal benefits.

While the stand alone model may sound like a great solution, companies may want to steer clear of expanding to the country independently. Expanding operations to Mexico without specialized knowledge about the country's employment laws, taxes or safety legislation offers the company little benefit cost-wise. Independent expansion to the country brings the company back to the start-up phase, which is expensive and time-consuming as well as increases the risk of not complying with Mexican regulations. While SourcingMag.com, an advice site for businesses, suggested businesses can mitigate this risk by segmenting work into smaller projects, doing so can be tricky. 

According to CIO magazine, an online resource for chief information officers, areas of Mexico continue to be unsafe for manufacturing, despite recent safety improvements by the Mexican government. Companies that expand to the country without aid from a shelter company run the risk of expanding into an insecure area. 

Instead, shelter companies provide manufacturers of all sizes the least amount of financial and operational risk while still offering quality control. Because offshoring companies understand Mexico's labor laws and take care of recruitment, payroll, technology and even the import and export of materials, manufacturers are able to take advantage of the structure offered by shelter companies. With shelter companies providing manufacturers with the ability to expand safety and easily into the country, the outsourcing alternative continues to be the best way to offshore the production process. 

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