Key questions and topics this episode addresses:
- Why did several manufacturing executives and company owners take a daylong tour of our Mexico manufacturing campus?
- How is Mexico manufacturing the answer to the industry’s ongoing labor shortages?
- Why are so many American companies in the wire harness sector turning to manufacturing in Mexico for cost-competitive production?
Read the full transcript of the podcast below:
Host: Hello, everybody, and welcome to the latest episode of This is Manufacturing in Mexico, the podcast of the Entrada Group. And for today’s guest, I’m pleased to welcome to the podcast John Paul or JP McDaris, who is Entrada group’s Director of Business Development. He’s been with Entrada for about a decade. JP is a member of Entrada’s leadership team. And as a result, he works closely with Entrada’s clients, with the service delivery team, as well as new prospective clients that are looking at setting up Mexico manufacturing operations for this first time with Entrada Group. JP has collaborated on more than 100 Mexico market entry projects for global manufacturers across many different industries. He’s also lived, worked and taught in Mexico for eight years. JP is really a great person to talk with, if you want to learn about not just the ins and outs of Mexico manufacturing, but also life on the ground there in Mexico because he spent so much time doing that. So please welcome to the podcast, JP McDaris.
JP McDaris: Hi, good afternoon. Thanks a lot for the introduction. I really appreciate you taking the time to work with us on this.
Host: Absolutely. I’m glad to go through an exciting topic with you today. Recently, you welcomed a bunch of manufacturing executives at the C-level and ownership group that came down to your facility in Zacatecas. I’ll let you get into some of those details, but I think this is a good place to start the conversation today. That is an audience of people who are very busy, they’re running their company, they’re running not just the operations, they’re responsible for everything, very busy schedules and competing agendas. How did you manage to get these high-level individuals to come down to Mexico and take a tour of your facility? Why are they looking at nearshoring?
JP McDaris: Well, it’s fantastic. Whenever you have the interest and the opportunity to bring executives and business owners to look at Mexico manufacturing, the complexities, and everything that is happening in a place like Mexico, an emerging market. What we’re starting to understand is there are a lot of companies in the US today. It’s not just about trying to find cost-competitive labor and other items that can make your company have a more competitive edge. I think what we’re feeling today from these executives and these owners is a strain on the labor force in the US, and the concerns for what is happening, not just today, but over the next 10 years. With the baby boomers leaving the workforce and retiring, who’s going to fill in those gaps on not only skilled positions but a lot of these other types of assembly jobs? This particular group, a major part of what they produce is wire harnesses for multiple different industries. We know that Mexico manufacturing is part of a very cost-competitive industry and that a lot of these companies have probably looked at places in Asia, and other cost-competitive locations. For one reason or another, they have not made that decision to jump. There were four companies in total, two of the gentlemen from one of the companies is actually already producing in Matamoros on the border between Mexico and Texas and we found it pretty interesting to know that it is no longer just about going to Mexico and going anywhere in Mexico. This company specifically is looking to get off of the border because of issues with unions, but also the cost. The cost can be anywhere from two to three times what it is in other locations in Mexico. So that gives you a better handle on who came and the type of companies. It is about being more cost-competitive, but at the end of the day, a lot of these companies are at 60/70% capacity and 20-some weeks from being able to fulfill orders because they can’t find labor.
Host: And I imagine COVID made that even worse, correct?
JP McDaris: Yes. It’s difficult to compete with the benefits that employees are receiving. Obviously, too there’s other concerns and factors, like children being out of school, not being able to afford daycare or child services so that they can go to work. There are multiple factors that are stacked up against the workforce in the US, and that creates a huge challenge for these companies.
Host: So we’re talking about a Mexico manufacturing trip by people from different parts of the US. Several different companies at the C-level, the actual owners of the companies in the wire harness sector, came down and spent time with you. How long were they there? What did they see and do when they were with you? Tell us a little bit about that experience.
JP McDaris: Sure. We met in Houston and had a wonderful dinner. We chartered a jet so we woke up early the next morning and were out of Houston by about 6:30 in the morning. We arrived about an hour and a half later at the airport in Zacatecas, Mexico near our Fresnillo campus. Essentially we spent about, 10 – 11 hours there. We planned this trip in April/May so we were uncertain as to what the policies of CDC and everything else would be. We just thought it would be easier to get everybody in and out in the same day. Where normally we would like for our clients/prospects to visit and stay the night. Zacatecas is an amazing city: 1540s Spanish colonial UNESCO World Heritage Site, it’s where all our clients stay. It’s about 40 minutes from our manufacturing campus. But in the end, we understand how busy these gentlemen are and we know that it’s hard for them to dedicate an extended amount of time to come down to check the place out. At the same time, one of the biggest comments that came up was how easy it was, from their past experiences of producing an Asia. You can leave Cleveland at 6:30 in the morning, and you could be in the operation by 1:00 in the afternoon. This was a huge eye-opener to them, literally being able to come in and out in one day.
Host: They appreciate it in the context of that trip, but also, on an ongoing basis that reshoring would be a big game-changer for their executives visiting regularly, for prospects visiting, to send down technicians, etc.
JP McDaris: Having their clients come in. Imagine your clients wanting to PPAP qualify or even just visit an operation to help you in that sales process. You literally can have them down there and back the same day. It’s a game-changer!
Host: A day, that’s not a long amount of time. What do they actually see with you and experience during the visit?
JP McDaris: To date, in our new Zacatecas location, we have a campus of about 5,000 employees and 13 different manufacturers, with a very diverse set of products. Everything from fishing rods, to wire harnesses that go in appliances, to premium speakers that go in X5 BMWs and Q5 Audis. A lot of different skill sets.
We really focused on getting them through four of our clients who produce harnesses for multiple different industries. I think the most important thing that we wanted them to get a handle on is there are high-mix/low-volume companies, but there are also high-volume/low-mix companies. There’s automation, wire crimping, physical, automated… really a lot of skill sets that are necessary for these operations. Just to give you a quick note about wire harness operations in our campus, 2,700 people (of the 5,000) are involved in the production of harnesses alone in our industrial campus. And around 120 of those are white-collar, managerial, supervisor, higher-end technicians, engineers. It’s good for them to understand this when we’re talking with them about cost. What is the level of these positions? Are these people bilingual? Would they really understand my business? It’s fantastic. They got to talk directly to plant managers. They got to get on the line and actually see how the people are being trained before they actually come out onto the lines. The recruitment center is where we are recruiting the labor, and doing a lot of different things that people are very clueless about in an emerging market like Mexico.
Host: Those elements that you mentioned, the recruitment, some of the training elements, are those components that are provided by Entrada Group at your Mexico manufacturing campus?
JP McDaris: That’s a great question. Within Entrada Group, what we have is our shared service center where we are delivering all the legal certifications, licenses, everything that’s necessary for our clients to exist in Mexico. They’re piggybacking on our legal infrastructure. Just to give you an idea, the IMMEX licenses, CT-PAT, Homeland Security, triple-A for VAT (value-added tax), returns, and even thinking OEA, which are Mexican trade and compliance certifications, which allow us to be able to have less than 1% of our trucks stopped, or even searched. There are a lot of different things that go into what’s provided for our clients. Our clients are 100% responsible for their employees, including training. Employees wear their uniforms; companies hire and fire and have the responsibility of the severance. But we’ve realized, especially with the wire harness clients, the need for certifications, and skilled training for IPC 620 certifications. So this is something that we have now been offering for a year and it has become a game-changer. We do not get involved directly in training on the actual product but anything that we can train on to give that competitive edge, we’re trying to provide for our clients.
Host: And I would encourage our listeners who are hearing this for the first time to go to the Entrada Podcast series page, because the first couple of podcasts, we spoke with Raul and Jonathan who went in-depth about the Learning Center, why it came to life, and why it’s such a special value-add.
JP, we talked a little bit about COVID and how that affected some of the labor pressure that the manufacturers in the US are feeling. Did the people on the trip also mention that as a strong pain point that they’re still feeling?
JP McDaris: It was pretty intriguing to them. We went into a few different sizes of operations. The largest operation for wire harnesses being 1,400 people on first shift and close to 7-800 people on second shift. The smallest is one of our newest clients with 50 employees. Our recruitment center, we’re able to hire up to 150 direct workers weekly. This is something that’s just been huge. In fact, for a couple of our clients during the pandemic, it was the exact opposite. While headcount was shrinking in the US, they were bringing in more people in their Mexican manufacturing facility. It was really interesting to see that dynamic. In fact, one of our harness clients actually grew around 200 employees in that 12-month span. They saw the ability to recruit and the willingness of the labor firsthand. One of the things that is also a difference from the United States is generational. My mother is a baby boomer. My mother’s aunts worked in parachute factories in WWII, building parachutes. One of my other Aunts was a riveter. It a very different generation who went through the depression. Passing on to my mom and those baby boomers, that when you get a job, you hold on to it. It’s a very different mentality from even my generation or these newer generations coming up. In Mexico, manufacturing is a very highly sought-after profession. There are additional benefits that come with working in the manufacturing sector. Employees are paid weekly, not bi-weekly as most companies in the US. There are a lot of different benefits including INFONAVIT, a program where the company pays into a housing credit for a first-time buyer. There are a lot of different things that employees in manufacturing in Mexico can get that are not available to workers in the mining or agricultural industries. That’s another advantage of hiring people that actually want to work for you.
Host: On this trip, you went down together on an airplane. You spent the entire day with these executives and owners. Were there common questions, concerns or things that they asked or expressed to you about Mexican reshoring during this visit?
JP McDaris: One of the common threads was that the wire harness industry in Mexico is shifting and changing. Its becoming more complex, and there is more demand for additional part numbers and lower-volume/higher-mix product. There’s a lot of concern about how long it takes to train. Are they going to be able to pick this up? Are they going to be interested in learning multiple part numbers? That is still a challenge today. But it’s something that is directly being addressed. It has to be, for Mexico to win more projects or win more opportunities from places like China. Another concern is, are they able to learn more part numbers? Are they interested in doing the job?
We’re purposely in a location that is sheltered from large OEMs, or major tier ones. That really helps our cost structure for our clients and helps us remain more cost-competitive. At the same time, are we able to attract talent from places like Mexico City, Juarez, Puebla, and other major manufacturing locations like Monterrey, Guadalajara. When our prospects walked through the facilities, they were talking to people in English, who came from these various locations. A lot of them have come because this is a new opportunity for them to expand their horizons, be able to have their own operations and, it’s a better opportunity than if they just stayed where they were.
Host: Are these companies and other companies you’re talking to looking at a Mexico manufacturing facility as something that can spur their growth in the future?
JP McDaris: Absolutely! When companies are coming to Mexico, this is not a one or two-year deal, not even a five-year deal. One of our longtime clients has been for almost 19 years. Entrada is really for companies looking at growing their capacity. Being able to have a cost-competitive location that allows them to go after RFQs that they normally would not be able to do. Mexico really becomes an enabler, a game-changer, as I like to say. What we always find is our clients are continually growing. They’ve grown post-2008 recession. In 2010, we had around 1,200 total employees in the campus and eight companies. It has been amazing to see that these companies, even through the pandemic and not being in Asia, but having a Mexico presence has allowed them the opportunity to compete against Asia and actually be able to deliver product next door into the North American market.
Host: In your experience, what kind of a pattern or a trajectory of growth have clients that have come down to your facility exhibited over time? What does that usually look like?
JP McDaris: It’s different for every client. I would say automotive is typically more aggressive. But we know, since the last administration that we had, there were a lot of things that affected Mexico and the growth of the automotive sector. We have a new treaty in place between the US, Canada, and Mexico. Now the pandemic and the semiconductor crisis, it’s been really tough for those companies to really thrive. But again, in Mexico, two of our clients from that industry have been able to really expand their space. One, for instance, is bringing plastic injection molding from China, and from other vendors locally in Mexico. They’re now going to do this in-house and that’s going to put on another 100 people on top of the 700 they already have. A lot of this growth strategy and structure is focused on North America and being able to meet the demands of their clients by having everything locally and not having to be so dependent on having an Asian supply base.
Host: You alluded earlier to this region being a special part of Mexico. Let’s talk about that for a moment. What’s special about where your facility is in Zacatecas? What makes it unique?
JP McDaris: The Fresnillo, Zacatecas location, aside from being a really beautiful location of Mexico, as I mentioned before, was intentionally picked with a focus of three points: 1. Could not have any major OEMs or major manufacturers that are taking up the labor. 2. It had to be no more than 10 hours from the border, so there is an offset between labor cost and freight. 3. It had to have an international airport. So this location is really special in that it shares all three of those. Eight hours from the Laredo, Texas border, where we currently have 400 trucks a month moving back and forth. You’re able to find several flights. Sometimes American Airlines is coming in direct from Dallas, or a lot of our clients go through Mexico City. About three to four times a day, there’s a 55-minute flight to Zacatecas. That’s really unique. It has the accessibility, and really has stayed competitive over the long term on those direct labor costs; something that’s difficult nowadays to find anywhere in North America.
Host: Interesting. So, what happens next? What does your overall process look like from here, and the potential for working with these companies in the future?
JP McDaris: It’s about a strategic relationship and helping companies grow in Mexico. We realize we’re not a partner for your profits, we’re a partner helping you survive and thrive and get through all the bureaucracy and everything that you face in Mexico. That’s what Entrada does through this strategic relationship. So, we have been working with some of these companies, one of them I have been talking to, for probably five years. We have developed cost models because they want to know that it makes sense to be in Mexico before they even come to visit. Taking a look at what the ongoing operation costs would be, everything from labor, freight, utilities, rent cost, all the different things that you can imagine for putting that model together. Then really drilling down on their concerns and answering all the questions that they may have. They’re in front of our HR director talking about unions, HR issues, and HR factors. Or they’re dealing with our Trade & Compliance Director, who’s doing analysis to see if they’re going to qualify for USMCA after moving or shifting product from China. This really is about building that trust, through analysis and educating our prospects. Now that they’ve come to visit it really turns into — we want to see your dirty laundry, we want to talk to your clients, and we want to have a better understanding of what their experiences are, which is always great. We have great relationships and partnerships with our clients. They’re talking to our clients, developing more questions, and getting more education from someone who’s been doing it for 5, 10, or 12 years. One thing that’s really big is talking to our clients who have most recently gone through a startup, to understand how long that startup process is? What’s the cost? How did they perform? It’s relieving to be able to turn them over to our existing clients who are our best salespeople.
Host: Interesting. How long does the startup typically take?
JP McDaris: Our best success story, particularly to wire harness, actually started up in 11 weeks. That includes finding the plant manager, fitting out the facility for electrical, compressed air, lighting, getting furniture in place, workbenches, equipment imported into Mexico. Everything that we need with the Mexican government from a financial standpoint, taxation, trade compliance, getting the raw material logged, and more. It varies though, I would say the average is closer to four, four-and-a-half months.
Host: Is there anything else you’d like to add for our listeners today before we close out the episode?
JP McDaris: I’m grateful for whoever’s listening to this. First and foremost, we’re educators on manufacturing in Mexico, and we take pride in being able to deliver the answers and deliver what is necessary to help prospects or companies that are looking at Mexico. We want companies to be a little more at ease about making this decision because we understand this is long-term. It’s not something short-term, it costs money to set up an operation. At the end of the day, what we want to do is lessen that burden, reduce that cost and ultimately reduce risk and exposure. Allow Mexico to be an enabler and be in the background of these companies’ success.
Host: And I’ll just add that their website entradagroup.com does have a wealth of information there about Mexico manufacturing, about the region, and different sectors. There’s a monthly webinar that JP and his team put on and lots of other resources. You can sign up on an ongoing basis for their videos or digital newsletters. As JP mentioned, they focus on the educational and informational approach.
I want to thank you for your time today. We look forward to hearing from you next time we get together in a podcast. Thank you.
JP McDaris: Thank you as always, it’s a pleasure and I appreciate the time you took to put this together.