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.
THE EVEREST GROUP