Entering the Mexican manufacturing sector is an exciting yet challenging endeavor. With its growing economy, strategic location, and competitive labor costs, Mexico offers immense opportunities for global manufacturers. However, understanding the best approach to entering this market is crucial. Should you opt for shelter services in Mexico or establish a wholly-owned subsidiary? This blog explores the pros and cons of each path, helping you make an informed decision tailored to your business needs.
Different Ways to Manufacture in Mexico
Mexico has established itself as a manufacturing hub, attracting companies from various industries. There are several ways to start manufacturing in Mexico, each with its own set of advantages and challenges.
Basically, you can choose a partner, like a shelter services provider, or look at a number of ways to incorporate your own entity in Mexico. There are operational models for almost every business case. In this blog post, we will explore Shelter Services vs. incorporating a Wholly-Owned Subsidiary in Mexico.
Shelter Services provide a streamlined entry into the market by offering administrative and legal support, allowing companies to focus solely on production. This model minimizes risks and reduces the complexity of regulatory compliance.
A Wholly-Owned Subsidiary involves setting up an independent entity in Mexico. This approach offers complete control over operations but requires significant investment and a deep understanding of local laws and regulations.
Operational Support encompasses various services such as consulting, logistics, and supply chain management. Companies can leverage these services to optimize their manufacturing processes and reduce operational inefficiencies.
Shelter Services in Mexico
Shelter services in Mexico offer a comprehensive solution for companies looking to enter the Mexican market with minimal risk. Shelter services provide a streamlined entry by offering administrative and legal support, allowing companies to focus solely on production. This model minimizes risks and reduces the complexity of regulatory compliance.
PROs of Shelter Services in Mexico
- Reduced Risk and Liability: Shelter service providers handle compliance with local laws and regulations, reducing the risk of legal issues. They are experts whose value includes staying on top of regulations, both local compliance as well as international trade requirements.
- Quick Start: With shelter's existing legal entity, a foreign manufacturer can jump-start its operations in Mexico by saving 3-6 months of start-up time.
- Focus on Core Activities: By outsourcing administrative tasks, companies can focus on their core manufacturing activities, improving efficiency and productivity.
- Economies of Scale: Shelters' shared services can provide economies of scale for foreign manufacturers, especially during the first years of operation.
CONS of Shelter Services in Mexico
- Limited Control: While shelter services offer convenience, they may limit the level of control a company has over its operations. There are two main types of Shelter Operators, with different levels of control. A dedicated shelter entity allows more control in the operation, including a pre-conceived exit strategy.
- Limited Flexibility in Operational Model: When a company chooses the Shelter model, the company can only operate under the IMMEX Program. This means the company cannot sell domestically. An additional company would be needed to sell the product in Mexico.
- Potential Unexpected Costs and Taxes: Depending on the shelter structure, there may be some shared costs with other companies. Additionally, some high Capex investment companies may see high income taxes under certain Shelter models.
By partnering with a provider of shelter services in Mexico, companies can benefit from various administrative and legal services that simplify the setup process. A shelter service provider is an operational parter, and those that want to mitigate risks or want to skip the learning curve will find the model advantageous.
Wholly-Owned Subsidiary
Establishing a wholly-owned subsidiary provides complete control over manufacturing operations. This approach allows companies to tailor their processes and strategies to their specific needs and objectives.
PROS of Wholly-Owned Subsidiary
- Full Control: Companies have full control over their operations, enabling them to implement their own policies, procedures, and quality standards. This also includes brand identity and development in the local market.
- Flexibility in Operations Model: Wholly-owned Subsidiaries can perform a thorough analysis of different operational models and choose the one that best suits their business needs and optimizes the taxes.
- Long-Term Investment: Setting up a subsidiary represents a long-term investment, allowing companies to build a stable and sustainable presence in Mexico. There may be additional benefits in their home country from having a subsidiary in Mexico.
CONS of Wholly-Owned Subsidiary
- Initial Planning & Investment: Setting up a wholly-owned subsidiary and obtaining all the required permits for the operation requires rigorous planning and a deep understand of Mexican regulation and processing times, in order to ensure a timely and cost-efficient start up.
- Complex Regulatory Environment: Navigating the Mexican regulatory landscape can be challenging, requiring expertise in local laws and regulations. Corporate leaders will need to be familiarized with Mexican regulation in order to make decisions on the operation.
- Full Team Structure: In order to ensure compliance in all the administrative aspects, companies must have a full team structure from the beginning, which can be costly, particularly for small to medium-sized companies.
For larger corporations with a dedicated team experienced in international operations, a wholly-owned subsidiary can give the flexibility needed to meet varying business goals and needs.
Operational Support
Operational support services offer a middle ground between shelter services and wholly-owned subsidiaries. Companies can leverage these services to optimize their manufacturing processes while maintaining some level of control over their operations.
Consulting Services provide valuable insights into the Mexican market, helping companies identify opportunities and mitigate risks. By working with experienced consultants, companies can develop effective strategies for market entry and growth.
BPO Services are scalable as companies grow, and include operational areas such as finance and tax, environmental compliance, international trade compliance, and workforce administration.
Logistics and Supply Chain Management services ensure the smooth flow of materials and products, reducing lead times and minimizing disruptions. These services can help companies achieve greater efficiency and cost savings in their operations.
Human Resources and Recruitment support helps companies find and retain skilled workers, ensuring a stable and productive workforce. By partnering with local HR experts, companies can overcome challenges related to labor laws and cultural differences.
Prodensa Support
Prodensa is a leading provider of operational support services in Mexico, offering a comprehensive range of solutions for global manufacturers. With over 30 years of experience, Prodensa has helped numerous companies successfully establish and grow their operations in Mexico.
Market Entry Strategy: Prodensa provides expert guidance on market entry strategies, helping companies identify the best approach for their specific needs and objectives. By leveraging Prodensa's extensive knowledge of the Mexican market, companies can make informed decisions and minimize risks.
Regulatory Compliance: Prodensa's team of experts ensures compliance with local laws and regulations, reducing the risk of legal issues and penalties. By staying up-to-date with regulatory changes, Prodensa helps companies maintain a smooth and compliant operation.
Start-up Program: With the experience of supporting over 1,000 manufacturing companies starting operations in Mexico. Prodensa's Start-up Program is designed to help companies launch their operations in a cost-effective and timely way. Most importantly, set a good foundation of compliance.
Operational Efficiency: Prodensa offers a range of services designed to improve operational efficiency, including supply chain management, logistics, and human resources support. By optimizing these critical areas, companies can achieve greater productivity and cost savings.
Conclusion
Choosing the right path for your Mexico manufacturing operations is a crucial decision that can significantly impact your company's success. Whether you opt for shelter services, establish a wholly-owned subsidiary, or leverage operational support, each approach has its own set of advantages and challenges.
By carefully considering the pros and cons of each option and leveraging the expertise of service providers like Prodensa, global manufacturing companies can make informed decisions that align with their strategic goals and objectives.
Ready to take the next step in your Mexico manufacturing journey?
Contact us today to learn more about how Prodensa can help you achieve your business goals and thrive in the Mexican market.
