Understanding Shelter Operations in Mexico Manufacturing
By Doug Donahue
Shelter Services in Mexico have become the most efficient way for companies to move their manufacturing to Mexico. Shelter services cover a range of turnkey solutions designed to help foreign companies get into Mexico and set up operations quickly – not least having to find a convenient location, well served by the transportation network, that is already fully equipped and meets the approval of local authorities. This frees up companies to focus on their core manufacturing capabilities and ensure that quality is high, while benefiting from a move to a nearshore location like Mexico.
The shift to manufacturing in Mexico can generate a substantial cost savings for companies. According to The Boston Consulting Group, a leading business strategy consultancy, the average factory worker in China now earns roughly $4.50 an hour – including benefits and other costs – with the rate likely to climb to $6 an hour by 2015. Mexico’s National Statistics Institute reported average manufacturing wages at $3.50 an hour in June, the most recent month tallied – a figure that doesn’t include benefits.
Labor savings alone are enough to make most companies consider a full or partial transition to manufacturing in Mexico. Proximity is the other. To visit offshore manufacturing operations in China is a significant time commitment, with flights of 15 hours or longer from the US and 10 hours or so from Europe. Travel time to inland factories takes additional time, meaning that a visit to fix inevitable production problems can take several days or up to a week. In Mexico, such troubleshooting or quality assurance visits can be completed in as little as a day or two.
That same proximity to final markets in North America also means companies can realize substantial cost and time savings in the transport of goods to market. Shipping from China can take up to three months from factory floor to store shelves in North America. With Mexico, similar products can be packed on a truck or train and, thanks to high-quality road and rail networks within US and Mexico, arrive at their final destination within days.
A Closer Look at Shelter Service
The shelter service, or maquiladora, industry is quite well established in Mexico (in Spanish, maquiladora refers to the practice of millers charging a maquila, or “miller’s portion,” for processing other people’s grain). Companies that elect to engage a shelter provider in order to manufacture in Mexico are entitled to foreign investment and management participation. Another crucial benefit is special customs treatment, which enables companies to freely import machinery, equipment, parts and materials, as well as administrative equipment (such as computers and office automation devices) for a temporary period – during the life of the maquiladora arrangement.
For companies that want to establish a manufacturing operation in Mexico in a hurry and leverage the cost savings quickly, a shelter services provider enables them to avoid the lengthy process and expense of choosing a location, leasing land, negotiating through Mexican governmental authorities and financial institutions – all just to set up shop.