With its strategic proximity to the United States, skilled workforce, and competitive production costs, a number of companies are actively developing strategies for manufacturing in Mexico.
For executives and businesses looking to tap into the rapidly growing market, selecting the suitable manufacturer in Mexico can significantly impact their product quality, lead times and overall business growth.
This blog aims to guide investors through the various modalities of manufacturing in Mexico, and provide valuable tips for choosing the right partner for The Mexico Journey™.
Before searching for a manufacturer, it's important to explore different modalities for manufacturing in Mexico. There are 10 different types of operational models, ranging from full control over operations to manufacturing and even distribution in the country. PRODENSA can assist in identifying which regime best suits the investor, depending on the expected outcome.
Contract manufacturing by a third party is a common alternative for businesses seeking to quickly establish a footprint and manufacturing presence in Mexico. To assist with this, Prodensa conducts a comprehensive partner search and acts as project manager, connecting multiple contract manufacturing functions to create a seamless operation. If assembly or value-added services are required, a Contract Logistics model could provide the right solution to certain business strategies.
For companies seeking to combine the limited exposure in Mexico while gaining more control over production and quality processes, an Inshoring Model could be the right fit. Prodensa's binational operation structure affiliated with the IMMEX Program provides companies an avenue to start operations, leveraging established trade incentives that save time and streamline the process.
For companies seeking a strategic operation in Mexico, models like Shelter- where Prodensa administers a custom and exclusive operation on behalf of the client- or Tolling- a model similar to Inshoring but with added tax benefits for capital-intensive operation- could by highly attractive. These models are particularly beneficial for companies with a strong growth strategy, offering flexibility and scalability while ensuring operational efficiency and compliance with Mexican regulations.
After defining the operational model, detailing the specific manufacturing needs will be required to find the ideal partner for the operation. In PRODENSA, the Supply Chain Diversification Methodology is applied, starting with the identification of the precise product specifications - materials, complexity, and volume requirements. Having a clear understanding of these details will not only help narrow down potential manufacturers but also ensure they are capable of meeting expectations.
Once potential manufacturers are determined, it's important to consider production volume, which is vital to determine whether the manufacturers can handle the desired scale of production. Some manufacturers specialize in low-volume production, while others are equipped for mass production.
Consequently, through this methodology, the cost breakdowns are determined based on the Cost of Goods Sold (COGS), cycle times, and markups to establish the selling price. Finally, optimizing inventory strategy, managing international trade complexities, accelerating time to market, and analyzing landed costs—along with selecting the right partner to accommodate production needs—helps prevent future bottlenecks and ensures steady growth.
Explore common quality systems among manufacturers in Mexico.
One critical factor to determine a potential manufacturer is the capability to comply with certifications and standards, such as ISO o UL, depending on the industry. This ensures that processes meet industry standards and regulatory requirements. Additionally, assess the logistical capabilities, particularly products are being shipped to the U.S. or other global markets. Therefore, a manufacturer experienced in exporting and customs-handling will streamline the supply chain processes.
Understanding Mexico's manufacturing landscape is crucial when searching for the right partner. The country boasts several industry clusters, each specializing in various sectors. For instance, the Bajío region is well-known for automotive manufacturing, Querétaro is a hub for aerospace, and Guadalajara excels in electronics. Identifying the industry cluster that aligns with your product can help you locate manufacturers with the expertise you need.
The Northern Corridor - the manufacturing capital of Mexico
"El Bajío" - the central point of Mexico's automotive industry
Mexico's Valley - the logistics hub of Mexico
Interoceanic Corridor - extraction and processing of hydrocarbons
When choosing to manufacture in Mexico with an operations partner, or Shelter services provider, their footprint could potentially limit your location options in Mexico. Therefore, consider the scope and scalability of your partner as a an important factor in selecting the best location for your operation in Mexico.
Download the free Ultimate Site Selection Guide e-book.
Additionally, conducting due diligence in the feasibility of your operation as well as the competition landscape can vastly support your business plan. Explore the free resources and research provided by Prodensa, aimed at helping investors understand the manufacturing landscape in Mexico.
To identify potential manufacturers, several resources are available.
Online directories and platforms like ThomasNet or Alibaba offer a wide range of options for finding potential manufacturers. These platforms allow you to filter manufacturers based on criteria such as industry, location, and capabilities. However, its important to have someone that can dedicate time and resources to conducting thorough due diligence, quality checks, and ultimately establish solid business relationships.
Attending trade shows and expos provides another effective way to meet potential partners face-to-face. Events like Expo Manufactura, Intermoda, and Mexico's Supply Chain Summit offer opportunities to network with industry leaders and explore the latest advancements in manufacturing.
Industry associations and chambers, such as CANACINTRA (National Chamber of the Transformation Industry) are also valuable resources to connect you with a reputable manufacturer. These organizations have extensive networks and can connect valuable insights into the industry.
Once you have a list of potential manufacturers, the evaluation process begins. Start by conducting a capabilities assessment, visit their facilities if possible or arrange virtual tours. This will give you firsthand experience into their machinery, production lines, and quality processes.
Next, consider the manufacturer's reputation and references, request feedback from their clients and conduct online research to evaluate their reliability. Reviews and testimonials can provide valuable insight into their performance and credibility.
Assess their quality assurance practices, including their quality control processes and testing protocols. Understanding their inspection standards will help you ensure that their products meet your quality expectations.
Finally, evaluate their scalability and flexibility. Confirm whether the manufacturer can scale production as your business grows, as well as adapt to changing demands. A partner that can adapt to your evolving needs will contribute to long-term success.
When working with manufacturers in Mexico, it's crucial to address legal and regulatory considerations to ensure a smooth and secure operation. Protecting your intellectual property (IP) should be a priority, familiarizing yourself with Mexico's IP laws and implementing proactive measures will help safeguard your designs, patents and proprietary information.
Additionally, establishing clear contract terms is key to preventing misunderstandings. Contracts should outline terms such as payment schedules, lead times, and penalties for delays, A well structured agreement not only defines expectations but also minimizes potential disputes.
Lastly, ensuring compliance with labor laws and environmental regulations is crucial to avoid legal risks. Verifying that your manufacturer adheres to Mexico's labor and environmental regulations will help mitigate liabilities while reinforcing ethical business practices and strengthening your brand reputation.
Additionally, efficient logistics and supply chain management are crucial for a successful manufacturing operation. Its important to evaluate transportation and shipping options in Mexico, including customs regulations for exporting goods. A well-structured logistics strategy helps minimize lead times and ensures smooth operations.
Finally, strategic warehousing and inventory management options near manufacturing hubs or free trade zones can optimize distribution and reduce shipping costs, and improve overall efficiency in getting products to market.
To strengthen supply chain resilience, consider multiple suppliers and contingency planning. Diversifying your supplier base reduces the risk of disruptions and ensures continuity in your manufacturing processes.
A strong relationship with your manufacturer is crucial for long-term success. Establish clear communication channels and maintain regular contact to set expectations and address potential issues promptly. Consistent communication facilitates effective collaboration and minimizes misunderstandings.
Cultural sensitivity is also crucial when working in a Mexican business context. Understanding and respecting local customs, and practicing cultural sensitivity fosters trust and builds positive business relations.
Implement performance monitoring to ensure quality, timelines, and efficiency standards are consistently met. Regular check-ins and performance reviews provide opportunities for continuous improvement and alignment.
Mexico offers distinct advantages as a manufacturing hub, including skilled workforce, competitive costs, and a strategic location. By leveraging these strengths and conducting a thorough due diligence, you can make informed decisions that drive your business forward.
Whether you're a seasoned executive or new to manufacturing in Mexico, this guide provides the insights needed to make confident decisions and unlock the full potential of manufacturing in Mexico.