Automobil Produktion Issue 03-2011: Supplying North America Cost-effectively

Based on an interview with Doug Donahue, Principal and Vice President of Business Development, Entrada Group – by Andrew Gottwald

Originally published in German.

US-based Entrada Group offers “shelter services”, a dedicated service to support international manufacturers wishing to take advantage of Mexico’s strategic location and low cost manufacturing capabilities. Automobil Produktion spoke to Doug Donahue about the benefits of offshore manufacturing in Fresnillo, the second-largest city in the Mexican state of Zacatecas; his 20 years of experience providing clients with offshore manufacturing expertise; and why smaller companies are attracted to Entrada’s offering.

Automobil Produktion: Mr. Donahue, Entrada is situated in the U.S. in San Antonio, Texas, while the industrial park operates in Mexico. Why?

In fact, the reasons are legally based. Our owner-managed holding group is based in the United States and therefore we fall under U.S. law. Our industrial park in Mexico is our subsidiary. International companies based at our site in Fresnillo have contracts subject to U.S. law. This way, we save our customers from having to grapple with the sometimes difficult construct of Mexican law. You don’t need to establish a Mexican business entity, and income taxes are technically not payable in Mexico. Nonetheless, customers benefit from the positive aspects of having a manufacturing location in Mexico, such as reduced labor costs. Entrada enables companies to develop a competitive cost structure.

Automobil Produktion: What does that mean in concrete terms?

The manufacturer benefits from operating from within our park, with a highly skilled workforce, in state-of-the-art industrial buildings, and accessing the shared services Entrada Group provides. A similar structure would be far too expensive for a company to setup up on its own. The manufacturer also reduces its investment and legal risks. Legally, the company that operates the park – Entrada Group – is responsible for interfacing with the government. We also support our clients in both critical production processes as well as in administration, to include accounting; purchasing; import-/ export- settlements; general logistics; dealing with authorities; approvals in negotiations with energy suppliers; local suppliers, etc.

Automobil Produktion: Are there other advantages, particularly for companies in the automotive industry?

Automobile component suppliers are more independent with us than, for instance, in OEM-owned “Supplier Parks”. They can supply several customers from their base here in Zacatecas. This is important, particularly for companies that would not be able to generate enough volume with a single customer. The opportunities available through this arrangement make investing in Mexico more sensible and attractive. Additionally, for smaller suppliers, it’s vital to keep their overhead costs low, as they are indeed in competition with some of the all-powerful giants. This cost control is achieved with the help of our “shelter” concept.

Automobil Produktion: Which automotive companies have you already managed to get on board?

We currently support twelve customers from a variety of industries, and more than half are from the U.S. More precisely, there are eight U.S. companies, two Canadian and two European companies – one British and one Belgian. Bowles Fluidics, Cable Manufacturing & Assembly, D & M, Pacific Insight Electronics and Westbrook Manufacturing manufacture parts and components for automotive applications in our Fresnillo-based industrial park. We’ve also added Electrex and IEC Holden in the off-road and transport sector. All together they occupy about 65,000 square meters of manufacturing space within the 240,000 square meters of land managed by Entrada Group. There are currently 2,000 local employees working there.

Automobil Produktion: So even European firms can manufacture at Entrada’s site?

Of course. In fact my colleague Wolfgang E. Meier, based in Espelkamp, is in discussions with several companies headquartered here in Germany. Our model helps these companies to be more competitive in the North American market by making better use of local cost advantages. And precisely because of the recent automotive crisis, there are enormous opportunities to gain regional market share. A location in North America, however, is essential.

Automobil Produktion: Which automotive corridors or companies can be served from your Fresnillo, Mexico location?

Our park is located in the middle of the Monterrey, Mexico City and Guadalajara triangle, and is perfectly situated for supplying the entire Southeast of the U.S. Our customers predominately supply Chrysler’s Satillo plant or General Motors de Mexico. Volkswagen in the area of Puebla is also feasible. There is access to an international airport, and within eight hours, goods can already cross the U.S. border. Within 36 hours they can be in Los Angeles, Denver and Alabama.

Automobil Produktion: How long has the concept of shelter services been around in Mexico?

It has been around for 40 years. Originally the Mexican government wanted to confine these companies to certain border regions and settle industries in export processing zones. Eventually, these areas became more and more developed. Local companies have always been well protected, and they “piggyback”, so to speak, on the park operators. In the meantime, such parks have spread throughout the country. The Mexican Government is keen to attract investments to the country, generating employment and transferring in new technologies.

Automobil Produktion: How soon can a company start-up production on-site? And how do they get qualified personnel?

In some cases, within as little as ten weeks can manufacturers begin to benefit from manageable wage and labor costs, with minimal legal and investment risk. Wages in Fresnillo are up to 50 percent lower than those in the Mexican regions bordering the United States. We help our clients recruit personnel. In fact, human resources and placement are our key strengths. We can provide staff, engineers and managers. In the direct vicinity there are eight technical colleges and eight universities. Supply costs can also be reduced thanks to our access to a number of regional sub-contractors which we can commission.

Article published in Automobil Produktion Interview with Doug Donahue ENG

Andrew Gottwald

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