Setting a Manufacturing Operation in Mexico

An Expert's View about Business Administration in Mexico

Posted on: 6 Apr 2010

This short article provides a strategic views on how to successful engage a manufacturing offshore operations in Mexico.

Setting a Manufacturing Operation in Mexico - How to harness the full value Mexico has long adopted favorable policies and programs to foster foreign manufacturing investments. Its long standing Maquiladora program, which has acknowledged several phases of evolution since inception and is now living under a new form, has proven to be an extremely valuable strategy since the country has achieved an exceptional level of foreign manufacturing investments in the last decades. Moreover, the free trade agreements concluded between Mexico and an impressive number of nations, including the highly successful North American Free Trade Agreement (NAFTA), have accelerated the foreign direct investments (FDI) and commerce. The economic stability of the country in recent years has significantly reduced the Country risk levels and increased investors confidence. By now, Mexico has proven its industrial capabilities and there are ample examples of global companies establishing world best manufacturing practices in the country. Year after year, Mexican manufacturing companies are recipients of the Shingo Prize, an international recognition for achieving manufacturing excellence. Strong of these performances, the country is now progressing into more sophisticated industrial sectors such as the recent and significant foray into aerospace. These strong industrial fundamentals are compounding with several other assets of particular value to U.K. companies. First, Mexico represents a low-cost manufacturing base that advantageously compares to other low-cost destinations, including China. The stability of the Mexican Peso in regards to the U.S. dollar also represents an asset for certain production and sales activities. Second, Mexico provides access to the significant markets of North America and Latin America. Finally, offshore implementations in Mexico are much more within the reach of most companies in terms of easiness, risk and required internal resources. Taking full advantage of Offshoring in Mexico is best achieved through a careful planning and a clear vision of the anticipated implementation. Offshoring is a strategic decision with long-term implications for any company, irrespective of its size and resources. A sturdy offshore project usually embeds from its inception all the contingencies to address the growth and potential widening of capabilities of a successful medium-term horizon while obviously addressing the short-term priorities of a first step. The conception of an offshore implementation must immediately address What if it is a tremendous suc cess beyond our initial anticipation? This forward thinking may influence many upfront decisions such as the business model to adopt for the steady state operation and for the immediate startup, the location and the technology transfer scheme; these being of immediate considerations with long-term impacts. Mexico has developed significant resources in terms of assistance in the implementation of manufacturing operations in Mexico such as Turnkey Startup Services and Shelter Services . These offerings represent intrinsically different business models with their respective values and limitations. Consequently, the selection of any of these business models must be the subject of a careful review to ensure that the selected model will meet the desired steady-state mode of operation of the company while providing the adequate startup support. Considerations in regards to eventual self-sufficiency, legal and asset protection, strategy on long-term outsourcing of administrative functions, technology transfer and intellectual property protection must be reviewed in the selection of the appropriate business model and the associated startup provider. Short-term startup assistance must not take precedence on long-term operational considerations. Location is definitely another significant factor of success. Mexico is not uniform in its geography and climate, industrialization levels, production costs, logistic infrastructures and trained workforce. A sub- optimal location can inflict severe limitations to the ability of achieving the short or long-term goals of an offshore implementation. The business drivers which will ultimately make the manufacturing operation successful shall lead the site selection rather than the mere cost of real estate or local government incentives; which represents only one or two factors in a long list of equally important aspects. To properly proceed with the site selection, it is recommended to request the assistance of professionals who can provide the foreign investor accurate and actual data on operating conditions and costs at selected locations. Finally, another key success factor is a thorough planning of the technology transfer to the new Mexican facility. It is relatively easy to find assistance to build facilities or to execute administrative startup and outsourcing; however, all this help is of limited value if the investor does not manage to acquire the skilled workforce and proceed with its technological transfer in an efficient and expedient manner. Although there are numerous universities and technological schools in Mexico, it is only very recently that significant government efforts have been made to tie closely the manufacturing industry needs to the educational resources and programs, in light of ensuring the availability of tradesmen and technicians. Reviewing the local educational programs and/or negotiating training assistance are steps that should be part of the investment planning. In addition, the specificity of the processes to be implemented in Mexico should be addressed beyond the access to the basically trained workforce. Strategies for in-house training programs, train the trainer, use of expatriates and immersion of key Mexican staff at the mother operations, also should be accounted at the inception of the project. Highly successful manufacturing implementations have been achieved in Mexico and they continue to land at a great pace. Resources are available to provide guidance and make the offshore process easier than ever. The success lies in careful planning and wise decisions. Luc Beaudoin Vice President THE EVEREST GROUP
Posted: 06 April 2010

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