With more and more manufacturers considering nearshoring operations to North America, there is a renewed interest in using a shelter service to do so. In order to regain control of their supply chain and better manage the process, companies want their operations closer.
Mexico is an increasingly popular alternative to China and East Asia. But investing in an unfamiliar locale can be daunting. This is why it’s so important to understand the strategic benefits of a shelter approach to nearshoring.
What Is a Shelter Service?
Transitioning operations to a foreign country is complex at best. Using a shelter service simplifies the process, but precisely how? When presented with the idea, many executives have questions.
- Just what is a shelter company?
- How much control or oversight will we retain?
- What sort of regulations and restructuring will this cause?
These questions shouldn’t be an obstacle. In fact, a shelter service exists to remove obstacles and simplify the outsourcing process. Here’s a quick breakdown:
A shelter company acts as the owner of record of a Mexican corporation. They are fully established, often have existing workforces and supplier networks in place, and some even have factories already in place. Your company may partner with them to retain full control over your manufacturing process and focus on quality and design while the shelter service focuses on all administrative tasks, such as:
- Recruiting
- Human Resources
- Permits and regulatory compliance
- Accounting and payroll
- Import/Export tax compliance
- Site selection and construction
- Freight coordination
- Government reporting
Why Mexico?
Mexico offers manufacturers numerous strategic advantages over producing in the States. Of course, the primary consideration in outsourcing is cost savings, and Mexico excels in this area. But it’s not the only reason to do business in Mexico. Some of the biggest advantages of manufacturing in Mexico include:
- Skilled Labor – Mexico’s labor force is not only suited to basic assembly, but also for highly skilled manufacturing jobs.
- Free Trade Access – Manufacturers operating in Mexico enjoy preferential-tariff trade options around the globe with over 50 nations.
- Cost Savings – Mexico’s labor costs are now on par with China or lower, import and export with the US is now duty free on most goods and materials under the USMCA, and shipment costs across the border are minimal.
- Flexibility – Maintaining a supply chain near to your distribution network just makes sense; nearshoring to locations like Mexico allows for agility in responding to changing market trends.
5 Benefits of a Shelter Service
- Fast Startup
Companies that go it alone can expect their startup process to take many months, navigating the regulations, permits, and culture, as well as building vendor networks from scratch. Those that partner with a shelter service can expect to take advantage of a turnkey process ready for their products and brand vision. The logistics and paperwork are handled by the shelter company, while the manufacturer makes crucial decisions and focuses on product quality. A new factory can be up and running in a matter of weeks.
- Reduced Tax Exposure
Manufacturers partnering with a shelter company enjoy certain tax incentives and a reduced overall exposure. They are not liable for Mexican income tax. They do not have to deal directly with any tax authority in Mexico. And they may import materials and equipment into Mexico duty free while exporting finished goods at 0% tariff. The shelter company ensures all compliance and regulatory paperwork is in place to enjoy maximum savings.
- Established Relationships
Shelter companies are already entrenched in the local scene. They already have relationships with labor groups, they understand how to pay their people a fair wage to ensure loyalty, they know where to find the safest facilities, and they have entire supply chains and vendor networks established.
- No Operational and Maintenance Hassle
Part of running any factory is handling maintenance and utilities. This can be particularly complex in a foreign country. Fortunately, a shelter company specializes in expertly managing these issues to mitigate impact and maximize savings and efficiency.
- Security
While Mexico is safe for business, there are certain risks that can be avoided through using a shelter service. These companies have highly secured industrial parks, or they know what areas of town to avoid. Further, they contract with reputable security firms to keep things running smoothly and safely, from factory construction to personnel security to guarding shipments and equipment.
The complexity and daunting unfamiliarity of opening a factory in Mexico should be no reason to forego its numerous advantages. Mexico is helping successful companies in all industries reduce costs and compete on a global level. A shelter service is the stress-free way to maximize those savings and ensure maximum benefits for years to come.
