4 Ways to manufacture in Mexico

By Steve Colantuoni

April 9, 2007

Manufacturers are under competitive and pricing pressures requiring executives to aggressively control and reduce costs. While this can be achieved through the implementation of lean manufacturing and consolidation and automation strategies, some executives seek to reach their goals by shifting labor-intensive operations to lower cost countries for savings such as Mexico.

Mexico's low landing costs can be attractive when compared to options in other developing countries. In many instances, Mexico is particularly well-suited to serve as a manufacturing venue for short to medium-run products with a high degree of engineering content.

The country's proximity to the United States enables technical and production personnel to coordinate activities -- easily bridging temporal and physical distances. This nearness-to-market also helps fulfill some just-in-time requirements.

Additionally, Mexican government efforts to enforce patent and intellectual property laws are advanced when compared with some judicial capabilities in place in other low-cost nations. Political risk associated with Mexico is minimal.

Product manufacturing in Mexico can be achieved in a number of ways. Companies are advised to consider the subcontract manufacturer as one option. As required labor numbers increase, alternate options provide additional savings as a result of economies of scales derived from increased labor content.

Contract manufacturing
Companies with high quality requirements must be certain to identify and work with contract manufacturing firms capable of meeting and maintaining their exacting standards.

If quality standards can be maintained, subcontract manufacturing can be the best option for firms seeking to manufacture product without be required to make large capital and organizational investments. Manufacturers with high intellectual property content must be assured that such property is protected.

Joint venture
A second means by which manufacturers can set up operations in Mexico is by establishing a joint-venture with an indigenous party. Joint ventures can be an effective means to achieving organizational goals given a local partner's knowledge of the local markets and prevailing conditions. Joint ventures with firms in Mexico that have established distribution channels can be of particular value to parties wanting to supply finished product to domestic markets in Mexico.

Establishing and maintaining joint ventures does create challenges. Both parties must share compatible cultures as well share similar business objectives. Finding a partner with sufficient similarity of process and purpose can prove to be difficult.

Wholly owned subsidiary
Companies can also become established in Mexico through the formation of wholly-owned subsidiaries. However, this can be a complex, costly, and risk-laden endeavor.

In addition to companies committing to a ‘bricks and mortar' investment, executives must take the time, make the effort, and assume the cost of assembling the skill sets required to navigate the waters.