Doing Business in Mexico
Doing Business in Mexico offers a wealth of opportunities for businesses seeking to expand into new markets or optimize manufacturing operations. However, one critical factor that must be considered before committing to any investment is labor feasibility. A comprehensive labor feasibility study evaluates the availability, cost, and skills of the local workforce to ensure alignment with your business needs.
Why Mexico?
Mexico’s labor market is diverse, with variations in talent availability, wages, and union presence depending on the region. Conducting a thorough assessment of the local labor landscape is essential to making informed decisions about where to locate operations and what industries or sectors will benefit from local expertise.
What is a labor feasibility analysis?
A labor feasibility analysis is a process that assesses the availability of workers in a specific industry or business. It involves analyzing the current and future demand for labor, as well as the supply of skilled workers in a particular region. This type of analysis is crucial to determine a total landed cost for knowledge-focused operations, considering many variables and scenarios.
The purpose of conducting a labor feasibility analysis is to determine whether there are enough qualified workers to meet the needs of a business or industry, and if they represent a cost-beneficial factor for the business plan. This type of analysis can help companies interested in doing business in Mexico make informed decisions about expanding or relocating to a new area, as well as identifying potential labor shortages that may affect their operations.
What does labor feasibility include?
Skills & Qualifications
One key aspect of a labor feasibility analysis is examining the skills and qualifications required for different types of jobs within an industry. This includes considering the education level, experience, and training needed for various roles. By understanding the specific skills needed for different positions, businesses can better assess the availability of workers with those skills in a particular area.
Current & Projected Job Market
Another important factor to consider in labor feasibility is the current and projected job market. This involves looking at employment rates, unemployment rates, and trends within a specific industry or region. By understanding the state of the job market, businesses can determine whether there is a surplus or shortage of workers in a particular area.
Cost of Labor
Additionally, labor feasibility analysis should also take into account the cost of labor in a specific region. This includes wages, benefits, and other expenses related to hiring and retaining employees. By considering these costs, businesses can determine whether they will be able to attract and retain skilled workers in a new or existing location.
Competitors
Labor competition can be tight, especially within close proximity like industrial parks, or among certain growing or niche industries. Identifying and mapping competitors in the market puts you in a better position to fill positions fast, as well as retain your critical talent.
Availability of Candidates & Education
Lastly, a comprehensive labor feasibility analysis should consider the availability of resources to train and develop workers. This can include access to educational institutions, vocational training programs, and workforce development initiatives. By understanding the resources available for skill development, businesses can determine whether there is potential for growth and advancement within the local labor force.
Why is a labor feasibility analysis important?
A thorough labor feasibility analysis is essential for making informed decisions about business operations and expansion plans. It provides valuable insights into the current and future availability of skilled workers in a particular area, as well as potential challenges and opportunities related to labor. By conducting this analysis, businesses can ensure that they have the necessary workforce to support their growth and success. Additionally, a labor feasibility analysis can help identify any potential risks or concerns related to labor that may impact the profitability and sustainability of a business. Overall, this type of analysis is crucial for businesses to make strategic and effective decisions when it comes to their labor force. So, it should be conducted regularly in order to stay informed and adaptable in a constantly changing job market.
Case Study: a Multinational Move from Europe to Mexico?
In 2022, PRODENSA engaged a multinational consumer goods and small appliance company about the possibility of moving their R&D footprint from Europe to Mexico. Executives identified Mexico as a goal due to "cheap" labor costs they were seeing from multiple digital sources. Our goal was to validate their project with a full labor cost model and analysis on potential candidates in the market.
A 4-week analysis provided:
- the educational institutions that train students in the specific tech skills and programs required for their highly skilled software and hardware engineers
- similar or competitive companies established in Mexico and their locations
- a fully-burdened cost model including competitive compensation packaged for each location considered by the company
- cultural training for decision-makers from specialized recruiters in the tech industry about candidate drivers and trends in the market
Results of the labor feasibility analysis showed that labor costs for the specific, highly-skilled employees were higher than the executives had estimated. PRODENSA's insights showed that the particular skills, and thus candidates, in consideration were highly sought after, and the necessary expense to attract and retain them over the first few years was substantial. PRODENSA was able to show real-life data from our boots on the ground in Mexico, understanding labor culture and drivers and including those in the quantifiable analysis.
In this particular case, the project was put on hold indefinitely while the corporate office analyzed their options. PRODENSA was able to provide the strategic decision-making data that supported (or not) their investment.
Case Study: Hitting the Ground Running with a Labor Feasibility Analysis
A global foods company sought support to understand the labor market of a small city in Mexico, their proposed site for a large investment in a new manufacturing facility. The operation would depend greatly on their workforce for the production of their food goods, and it was important to understand how their identified location could accommodate their plans. Executives also wanted to understand as many details possible about the labor market, to use as a easy-to-read guide for making strategic decisions about their talent.
In addition to benchmarking their 42 different labor positions, the PRODENSA team "Mexicanized" the job descriptions to align with local regulations as well as specific skills expected for the positions. A specific focus of the labor feasibility analysis was:
- Evaluating the local market and demographics to define transportation routes that would match with the labor requirements
- Identifying local education institutions in order to build a training program aligned with short-term as well as long-term goals
At the conclusion of the labor feasibility analysis, the client validated their cost model and was ready to execute a hiring plan based on the results of the labor market analysis. This led to a streamlined and efficient startup of operations that met all production and staffing goals for the company. Having data at their fingertips helped the local team make decisions and adjustments on their talent strategies, and fulfil their KPIs.
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Conclusion: Before Investing in Mexico
In conclusion, a labor feasibility analysis is an important tool for businesses to assess the availability of workers in a particular industry or region. It involves examining various factors such as skills and qualifications, job market trends, labor costs, local laws and regulations, and resources for training and development. By conducting this analysis, businesses can make informed decisions about their workforce needs and ensure long-term success in a competitive market. So, it is an essential process that should be prioritized by all businesses to stay ahead of the curve in terms of labor planning.