A complete guide to investing in factories in Mexico

Mexico has always been a hot spot for FDI, because foreign businessmen have good reasons to choose here to increase their global distribution network. Since 1999, more than 13000 companies have enjoyed the benefits of building factories in Mexico.
Now, more and more companies choose to invest in Mexico. These companies have also attracted partners related to their production supply chain and strengthened the existing operational infrastructure of Mexico's major industries. In addition, more and more large enterprises recognize the advantages of regional economy and concentrate their factories in the low-cost central area near the largest market. These advantages have greatly increased Mexico's attractiveness.
The practice results of numerous enterprises have proved that manufacturers can enter the "waiting for business" state more quickly and directly in Mexico. If your company is considering investing in Mexico, this article will provide you with all the information you need to know about the due diligence of your investment project.


Advantages of building factories in Mexico
Roca Fuerte Industrial Park in Mexico where aerospace companies go to experience the benefits of manufacturing in Mexico
There are many advantages for foreign businessmen who want to expand their manufacturing territory in Mexico. Here are some of the main advantages of building a plant in Mexico:
1. Government incentives
The federal government of Mexico has been strongly supporting foreign businessmen to build factories in Mexico. In 2018, Mexico's manufacturing revenues accounted for 17% of GDP. One of the main forms of incentive measures introduced by the government is the tariff relief measures under the IMMEX project. Through this project, if the manufacturer exports the goods within the specified time, it can "temporarily" import the production raw materials and production equipment without paying the tariff and 16% value-added tax.
Enterprises can register under the IMMEX project and obtain value-added tax (IVA) certification, so as to greatly reduce costs. One of the most efficient is the maquiladora project in Mexico. Manufacturers can conduct business activities under the legal framework of shell service providers registered under the IMMEX project. In this way, manufacturers can simplify the cumbersome regulatory process and reduce the tax burden. In some cases, you can start a new company in just 30 days.
2. Connect with the international market
It is not surprising that the United States is Mexico's largest trading partner because of the border between the two countries. Of Mexico's exports, 76.5% went to the United States. Considering the cost-effective transportation costs, if the company's target market is the United States, it is likely to choose to build a factory in Mexico to do business. Let's make a comparison: it costs about 1800 US dollars to transport a 40 foot container from Mexico to the United States in a week; it takes 3-5 weeks to transport a 40 foot container from China to the United States, and it costs about 4300 US dollars (the freight will fluctuate greatly according to the change of market supply and demand. The data in this paper is for reference only). Mexico has a number of deep-water ports, which can reach the Atlantic and Pacific Ocean, as well as railways, international airports and usmca (formerly NAFTA) highways directly to Canada. Developed transportation network makes free trade possible in North America.
In addition to the direct free trade with the United States, Mexico is a reliable choice for investors around the world. In 2018, Mexico exported $450.9 billion worth of products. Mexico has more free trade agreements (FTA) than any other country in the world, and has established trade partnership with more than 50 countries in Europe, South America and Africa. These agreements reduce trade barriers such as tariffs and import quotas, and build strong cooperation with other countries through the exchange of goods and services.
In addition, in many industries, trade centers have been established in many regional markets, and the trend of industrial regionalization has gradually expanded. Trade between manufacturers around the world and China has been affected by factors such as US Tariffs and the outbreak of the new coronavirus. Manufacturers are aware that a decentralized manufacturing business is more flexible and less risky than a single location.
3. The cost of skilled labor
The low cost of skilled labor in Mexico is one of the main reasons why manufacturers choose to build factories here. According to the cost of living in different places, the average manufacturing worker's hourly salary in Mexico ranges from $2.4 to $3.04, while that in the United States ranges from $16.07 to $25.98. Although the usmca has issued relevant regulations to require employers to raise workers' wages, experts predict that workers' wages will be raised to the required level step by step in decades. Experts also predict that wage increases will eventually help Mexican employers retain more skilled employees and improve overall manufacturing efficiency.
Finding well-trained workers to complete complex production tasks is more important than reducing costs. This is especially true in industrial clusters. Manufacturing plays an important role in the national economy, so there are many training programs for manufacturers in Mexico. Many of the portfolio projects can provide practical technical training.
Major manufacturing industries in Mexico
Medical Device Manufacturing Employees in Mexico
It is not difficult for manufacturing enterprises to operate in Mexico and obtain corresponding profits. Manufacturers in some industries will benefit more from a more centralized supply chain. Industrial cluster can help enterprises improve the efficiency of supply chain, and obtain more powerful training resources, and help local labor force to engage in related work for a long time. Specifically, five industries have attracted supporting manufacturers to concentrate their strong supply chains in Mexico.
1. Aerospace manufacturing
Aerospace manufacturing accounts for nearly half of Mexico's foreign direct investment. There are about 300 aerospace manufacturing companies operating in the industrial clusters in cretaro, Sonora, Chihuahua, new Leon and Baja California. This includes OEMs and tier 1, tier 2 and Tier 3 suppliers. Kraitaro has the largest aerospace industry cluster and is supported by universities in partnership with Bombardier.

2. Automobile manufacturing
Mexico's automobile manufacturing industry has a history of over a century, and it is the fourth largest exporter of auto parts in the world. Among the total vehicle imports from the United States, Mexico accounts for the highest proportion. So automobile manufacturing is one of the most important industries in Mexico. There are 10 OEMs operating in Mexico and they have been working with supplier networks at all levels to improve productivity and export capabilities. Mexico's automobile manufacturers are all over the country, but mainly concentrated in Coahuila, San Luis portosi, Baja California, Sonora, new Leon, cretaro, halisco and Guanajuato. Automotive manufacturing companies in Mexico have established a presence in every corner of the country, but are primarily clustered around Coahuila, San Luis Potosí, Baja California, Sonora, Nuevo León, Queretaro, Jalisco, and Guanajuato.
3. Medical device manufacturing industry
The process of manufacturing medical devices is very complicated. Due to the high requirement of precision and the small size of some instruments, some processes usually need to be manufactured by hand. The medical device assembly line consists of many parts and requires skilled workers, which are easy to find in Mexico. In general, there are nearly 650 enterprises engaged in medical device manufacturing in Mexico, with a total export value of about US $8 billion. Most of the products are exported to the United States, accounting for 92% of the total. The rest are exported to Germany, Italy, Spain, the Netherlands and Japan. The largest medical device cluster is located in Baja California with 67 companies. Chihuahua, coavera, Nuevo Leon, halisco, Sonora and Tamaulipas were closely followed.
4. Electronic manufacturing
Mexico's electronic manufacturing industry provides supporting services for many other types of manufacturing industry in the country. In general, western Mexico is good at assembling parts in aerospace, high-tech products, information technology and electronic manufacturing industries. These states include Baja California, Sonora, Chihuahua, halisco and Aguascalientes. By contrast, eastern Mexico is good at making computers, home appliances and consumer goods. These manufacturing operations are mainly concentrated in coavera, Mexico City, new Leon, cretaro and Tamaulipas. Both the East and the west of Mexico are good at making parts for cars and telecommunications.
5. Home appliances and furniture manufacturing
Mexico is the fifth largest exporter of electricity in the world and an important manufacturer of furniture and daily necessities in the world. Many companies tend to be close to relevant industrial clusters in order to share similar labor and supplier networks. Kraitaro, tekat, Guadalajara, Monterey and Saltillo are particularly attractive to home appliance and furniture manufacturers.
Steps to build a factory in Mexico

Looking a project plan to set up a maquiladora in Mexico

For those who want to take advantage of Mexico as a manufacturing center, there are several ways to enter the Mexican market. No matter what method is adopted, enterprises need to determine the control rights they need in all aspects of operation, as well as the location problem to obtain the "local conditions" solution. Among them, the former is related to the business model of the enterprise.
Step 1: how do you want to make your product in Mexico?
The first step is that enterprises need to determine their own business model. There are many business models, each of which has different management and control levels and responsibilities.
Operation mode of independent company
In order to establish an independent factory, the enterprise needs to register a new legal entity in Mexico, independently respond to the requirements of relevant regulatory regulations, and bear all the obligations of income tax and consumption tax. In this mode, the enterprise has absolute control over the business in Mexico. However, some enterprises will choose to outsource certain matters to local consulting companies at the initial stage of establishment.
Shell mode
The shell model, which began in the 1980s, can help foreign companies reduce the risk of building factories in Mexico and accelerate their access to the local market. The word "shelter" means to help multinational manufacturing enterprises solve trade, labor and tax issues. In this mode, investors have absolute say in production related activities and assets, but all administrative and non production process affairs are completed by the shell service provider registered with IMMEX. The shell service provider will act as a legal entity responsible for ensuring the legality and compliance of the enterprise and conducting transactions with local suppliers on behalf of the enterprise.
The service level of sheller service providers is uneven, so enterprises need to be clear eyed and carefully screened, and then they can choose their own service providers. According to the company's strength and service level, shell company can be roughly divided into six levels.
1. Full service shell company: provide a complete set of services, including plant start-up, plant rental, and follow-up accounting and human resources and other long-term services.
2. A full set of shelter services: from the beginning, they can provide the administrative management services needed by enterprises for a long time, but they do not provide factory rental services because they do not have industrial real estate business.
3. For the start-up company, shell: help the enterprise set up the factory, but then hand over the daily operation to the internal support team.
4. Contract manufacturers providing shell services: provide corresponding services for enterprises according to their needs, including sub contracted workers' services.
5. Real estate companies providing sheller services: focusing on the leasing and sales of industrial real estate. Some of them also provide management services to some extent.
6. Shell service provider of customized services: manufacturers are allowed to choose different kinds of services according to their special needs.


Contract processing mode
The contract processing mode in Mexico is similar to that in other countries. Different from the operation mode of independent companies, contract processing enterprises in Mexico own most of the production assets, are responsible for controlling daily production activities, and charge foreign companies a fee for the production of goods. Foreign enterprises are only responsible for supervision, and have no real power to control production activities. The work related to production shall be completed by the contract contractor.
M & a mode
This model is more rare, but some companies choose to enter the market by acquiring a Mexican manufacturer. Foreign companies will benefit directly from the fact that the manufacturing business of the acquired company has complied with Mexican regulations and regulatory requirements. M & a mode can shorten the time needed to carry out business, but it will face certain risks in integrating management partners.
Joint venture mode
Joint venture is a way of cooperation, each participating company with its own unique expertise or advantages in order to achieve a common goal. Foreign companies provide customer resources; Mexican manufacturers provide the necessary hardware and technology, and ultimately realize the production and sales of certain products. All parties in the cooperation can benefit from this mode.
Step 2: how to choose the address of the factory?
For many Mexican manufacturers, proximity to industrial clusters is a good choice. If a company wants to start its production business quickly, you will benefit a lot from entering a manufacturing community. This kind of manufacturing community can provide far more services than ordinary industrial parks. Generally speaking, the manufacturing community can combine the rentable A-level industrial park with the shell service under IMMEX. The services provided include complete legal framework and on-site support, such as human resource management, wages, import and export, accounting and procurement, etc. Manufacturing groups such as Bella Vista in Sonora and ZapA in Saltillo can fully guarantee the availability of public facilities, provide training for new employees, and even provide high-quality entertainment and welfare facilities to attract potential employees.
For more personalized solutions, manufacturers can choose to build their own plants. In this case, the following location factors are very important.
The convenience of transportation. Consider locations close to major highways, land entry ports, airports, seaports and rail crossings. Fifty six percent of Mexico's maquiladoras are located in six states along the U.S. - Mexico border. One reason is that it's very convenient to get to the United States.
Availability and cost of water, electricity and gas. Overall, the cost of electricity and gas in Mexico is the same as that in the United States. However, not all industrial areas are fully equipped with natural gas. Although natural gas pipelines are being built to alleviate demand, manufacturers are still willing to choose areas that have been connected with natural gas to avoid the risk of interruption of natural gas supply.
Ability to recruit employees. Staff costs vary in different regions. When the competition of regional manufacturing center is large, enterprises should provide higher salary for employees. However, building factories in rural areas will cause employees to pay more for transportation or food. Employers also have to balance hiring skilled employees directly with spending time on in-house training.
Major manufacturing locations in Mexico
Map of main manufacturing locations in Mexico: Tijuana, Monterrey, Saltillo, Queretaro, Guanajuato, Hermosillo, Guaymas, and Empalme
Each region of Mexico has its own unique advantages, so it is necessary to prioritize the conditions you need when considering location. For example, would you give priority to fast access to the U.S. market? Or would you prefer to build a factory in the south where the salary is lower? Is there any supplier type closer to what you value? Or do you just want enough space to start your own factory? Here are some of Mexico's hottest manufacturing locations:
Tijuana is Mexico's largest export manufacturing base. It's close to the U.S. border, so it attracts manufacturers from a variety of industries. So it's one of the most populous cities in Mexico, and 26 percent of them work in manufacturing. The cost of being closer to the US is higher wages for workers and higher costs for factories.
Other manufacturers may choose Monterey, a little further away from the United States. Monterey is the third largest city in Mexico and the hub of Commerce, industry, education and transportation in northern Mexico. In 2017, Monterey's manufacturing exports accounted for 60% of new Leon's exports. Monterey is a steel production center, which attracts manufacturers from aerospace, automotive, electronics, medical devices and other industries to build factories here.
Many car manufacturers will also go directly over Monterey and choose Saltillo nearby to build a factory. Saltillo is the industrial center of coavera state. Chrysler and GM have built factories here since the 1950s, and then the infrastructure such as training institutions and R & D centers began to flourish.
At the same time, aerospace companies such as Airbus, Bombardier and Safran are vigorously developing their businesses in cretaro. It's only nine hours from the city's manufacturing center to the U.S. - Mexico border, and the price of local labor has a certain advantage over other regions.
Guanajuato is located in the northern part of Mexico City, in the El Bajio industrial zone. It has become the fastest growing manufacturing state in Mexico. The economic output ranks the sixth in China and grows rapidly. Among them, the developed automobile manufacturing industry has made a great contribution.
At the same time, you can also consider emosiyo, guaimas and enparme. Sonora manufacturing city network is developed, aerospace, automotive, electronics, optics, medical devices, metal and other industries manufacturers can obtain stable and price advantage labor here. These cities are surrounded by deep-water harbors, international airports and highways leading to the United States.
Step 3: what is the cost of building a factory in Mexico?
Team determining what it would cost them to manufacture in Mexico
In order to save money, the only way to build a factory in Mexico is to comprehensively analyze and estimate the initial investment and operating costs. Factors that need to be focused in the analysis include:
Rent: the average rent price per square foot, three net worth per month ranges from $0.42 in Monterey to $0.48 in Tijuana. The price will fluctuate according to different regions and factory conditions.
Water and electricity: the average electricity charge is about $0.110 per kilowatt hour. In some areas with low electricity charges, the additional cost of air conditioning or humidity control may offset the difference in electricity charges. The cost of natural gas varies from US $0.037 per cubic meter to US $0.0956 per cubic meter, depending on the region and monthly usage. Water and sewage charges are usually $0.007 per gallon.
Wages: Workers' wages fluctuate up and down according to the technical proficiency of the required workers. On average, Mexican unskilled workers earn about $2.40 an hour for direct employment. The labor force with higher technical requirements, such as CNC machine tool machinist who has been trained for several years, is paid about $6.02 per hour. For indirect jobs such as material planner, the average hourly salary for specific skills may be close to $13.51. Of course, these average wages are based on a wide range of wages in Mexico, which can provide some reference for you to consider the potential cost savings in the future.
Logistics: in addition to the most basic transportation costs, enterprises also need to calculate customs fees. The cost will vary depending on the destination and frequency of shipment.
Supervision fee: the initial fee will be incurred when the enterprise registers the company, meets the registration requirements and handles the business license. Some of the costs can be circumvented through the shell service.
Comparable cost: accurate cost analysis can calculate the average operating cost of similar industries or regions. You can analyze your own operating costs based on this data, so as to reduce unnecessary expenses.
Step 4: how to build a factory in Mexico?
With the help of a shell service provider, companies planning to build plants in Mexico can go into production as soon as 30 days. Any enterprise that wants to enter the market as soon as possible must make full plans in advance in order to quickly put into operation. During the preparation period, important issues to be considered include:
Confirm whether your products need to be sold in Mexico at the same time of export. Enterprises that export all their products do not need to register a separate legal entity in Mexico. However, if a business plans to sell and invoice goods and services to companies in Mexico, there must be a legal entity in Mexico.
Determine the appropriate corporate structure. Enterprises need to seriously explore whether the selected sheller service provider can better control the operating costs, or evaluate whether the joint-stock system or the limited liability system can benefit the enterprises more.
Determine regulatory requirements. Companies operating under the shell service provider can reduce the regulatory burden, including shortening the time to register with IMMEX, and obtain the company's filing or operating license from the Social Security Bureau (IMSS), customs (aduana) and environmental health and safety department (semarnat).
Choose between leasing, buying and building new plants. In Mexico, there are plenty of Grade A plants. Such plants are generally located in closely connected industrial clusters, and can quickly adapt to the unique needs of manufacturers.
Identify personnel needs and training needs. In Mexico, universities and business supported training centers that can provide quality vocational training will have a significant impact on the long-term development of your business.
Evaluate local suppliers. Understanding the ability of local suppliers to provide quality parts can help you cut costs significantly.
Cooperate with authorized customs broker. Only customs agents approved by Mexico can clear your goods at customs.
Are you ready to build a factory in Mexico?
Building a factory in a low cost environment is a good choice to reduce operating costs. However, in order to fully enjoy this price advantage, we need careful planning in advance. In addition, the speed of entering the market also largely determines the amount of cost saved. Companies that invest faster in manufacturing can get a return on investment earlier. This is another important advantage Mexico offers manufacturers. Cooperating with experienced professional consultants and choosing sheller service mode will become the key factor for the company to obtain huge profits.