Inexpensive labor and expeditious shipping are attractive reasons to manufacture in Mexico – but there’s one important factor U.S. and Canadian business should consider before doing so, one expert believes.
“If you’re going into Mexico, unless you’re a very large operation, it makes a lot of sense to partner with a full-shelter organization,” notes Dave McQueen, managing partner of McQueen and Associates Management Consulting Firm in Ontario, Canada. “This should be a Mexico shelter company that can handle the administration for you, as well as deal with the complexity of setting up in a Mexican manufacturing location. You get to focus on your operation and manufacturing.”
McQueen and Associates generally helps small- and medium-sized companies to improve and expand their businesses, particularly in the area of offshoring and manufacturing in low-cost countries. At this point, the firm has helped establish two companies’ presences in Mexico utilizing The Offshore Group’s shelter services.
Before considering a shelter situation, McQueen “did the math and examined whether it would be more cost-effective for us to go in and hire our own staff to do the same things” as the Mexico shelter organization would, such as legal services and management. “However, in both cases we found that – for the size of operation we were planning – it was actually more economical to go with the Mexico shelter company,” he affirms. “We found that not only cost is lowered, but also the risk of making mistakes is reduced as well.
“I’m a strong advocate of that, and particularly recommend The Offshore Group,” he adds, “but there are other Mexico shelter services out there. A full-service shelter provider should be the right partner.”
Why is assistance in a foreign environment so important? McQueen recalls a situation in which a large, Fortune 500 manufacturer had a plant in a shelter-manufacturing operation in Mexico. The first location was successful, growing to employ several hundred workers. The company then decided it could handle launching a second location unassisted, and it “ended up in disaster,” the consultant says.
“At one point, they had four senior executives working in rotation from the United States, flying into the plant on a weekly basis to try to solve the problems that existed,” he recounts. “It proved to me that even large corporations – when they get into a situation with a different culture and a different workforce – don’t necessarily know what they’re doing and can run into some significant and costly problems. So … having a partner that is experienced and reliable is the way to go.”
Citing extended shipping times, extreme language barriers and a 12-hour time difference between China and North America, McQueen believes manufacturing in Mexico generally offers more benefits than China to Canadian and U.S. firms.
A 2011 report published by the U.S. Bureau of Labor Statistics reveals hourly compensation rates in China’s manufacturing sector have steadily and quickly accelerated – doubling in the time between 2002 and 2008, while North America’s rose only 19 percent. Additionally, the Journal of Commerce touts Mexico as having the lowest landed costs for U.S. importers last year.
McQueen notes the cost of using shelter services may become an issue “when (your company) is large enough that costs are going to be better if you have your own staff taking on some of (those) functions … but, on an ongoing basis, it has been very helpful for us to have the management in The Offshore Group’s industrial park looking over our shoulders.”