Table of Contents Introduction
2
Challenge No 1. Understanding Mexican regulatory compliance (Delivery in administration)
4
Challenge No 2. Understanding the ramp up costs (investment)
5
Challenge No 3. Understanding and adapting company culture to Mexico
6
Challenge No 4. Understanding labor
7
Challenge No 5. Understanding and identifying the supply chain
8
About Prodensa
9
Some of Our Clients
10
INTRODUCTION Who is this eBook for? Ÿ COOs who are looking for solutions to lower their operational costs. Ÿ Business owners who want to expand their business while being cost efficient. Ÿ Companies that need to remain competitive while growing their market share.
Did you know many companies have been successful thanks to Nearshoring their manufacturing operations? Here's the problem you face: your manufacturing and logistics costs are on the rise as well as the delivery times of your products to your final customers. This means you're losing competitiveness; your margins are shrinking and you're being unable to keep up with your competitors. Luckily for you, there's a solution. Let me introduce you to the 5 Nearshoring Challenges so you can overcome your cost concerns and focus your time and energy on growing your margins and market share. •
Lower your costs with qualified labor in a country with a demographic bonus so you can be and remain competitive.
•
Expand operations to a country with thriving commercial treaties with the USA so you can take the advantages that come attached to these relationships which means more benefits for your company.
•
Select a strategic location that helps lower your logistic costs and times so your product can reach your customers faster which means more efficient fulfillment times.
For over 35 years, we’ve been assisting more than 700 foreign investors in the manufacturing industry taking the advantages of nearshoring their operations. But don't just take my word for it. Take a look at our e-book and some of our success stories. Enjoy the PRODENSA WAY.
Emilio Cadena CEO, Prodensa
2
Challenge No 1. Understanding Mexican regulatory compliance (Delivery in administration)
5
8 ,15
Maquiladoras
$85.7 4
2’670,674
D US
(manufacturing for exportation)
B
by numbers. 5,158 maquiladora companies operating in Mexico. 2’670,674 direct jobs. Combined gross production of $85.74 billion
55%
Representing 55% of Mexico's manufacturing exports
Don´t Lose Sight of Compliance “Ensure local compliance in your operations,” says Jorge Ortega Associate & Strategic Advisor of Prodensa Consulting Services. “No matter what country you operate, governments are also being squeezed, and their interest to attract investment usually translates to game changes as well. You can´t focus only on global macros and dismiss the changes to incentives and rules that could add up to even more headache and cost. One can´t go without the other.”
Manufacturing Compliance Regulations in Mexico Ÿ Ÿ Ÿ Ÿ Ÿ Ÿ Ÿ Ÿ Ÿ
Official Mexican Standards (NOMs) Federal Labor Law (Secretary of Labor) Social Security (IMSS) Mexican Standards (NMXs) IMMEX, (Maquiladora, Manufacturing and Export Services Industry) USMCA (United States-Mexico-Canada Agreement) Maquiladora VAT Certification Rule of Origin (RoO) International Organization for Standards (ISO)
Success Cases American manufacturer of polyester fiber gets IMMEX certification to start producing on time. Our client decided to start as a maquiladora, and needed to get the VAT and IMMEX certification in a relatively short time in order to import their first lines of production. At that time the criteria for obtaining VAT certification was starting to be more stringent. Our solution for this was to help them to get the IMMEX certification of the Prodensa Group of Companies. This solution meant a saving of $20 million pesos of VAT, in addition to being able to start on time their production plans. Eventually when conditions were met, the client obtained its IMMEX.
American manufacturer of steel caskets avoids the payment of $10 million pesos after an accident. Derived from an accident that occurred in 2018, the company needed to be classified in the highest risk premium of the IMSS, and was requested to pay the retroactive of that premium from the time the accident happened until the end of 2019, a total of $10 million pesos. Prodensa's finance team prepared all the evidence to argue why our client should not change its risk premium and that there was no place to pay the fine. Subsequently, an appointment with the IMSS was scheduled, and all the evidence was shown, resulting positive for our client.
Challenge No 2. Understanding the ramp up costs (investment) Labor First, analyze how much it costs to open a new manufacturing facility. These are some costs we recommend being considered in the decision making process.
The sum of all wages paid to employees, employee benefits (mandatory and market driven) and payroll taxes paid by an employer.
Logistics Supply chain, transportation, tariffs, import duties, and other associated costs.
Infrastructure Land, building, and utilities (electricity, water, natural and industrial gas, fiber optics, and other).
Services Fixed costs, variable costs, operating costs, maintenance.
Taxes Taxes and fiscal obligations on federal, state and local levels. How to adjust your Mexico tax strategy to your corporate vision.
Government Incentives Governments can offer financial assistance to private businesses making investments using economic incentives. Incentives can include tax abatements, tax revenue sharing, grants, infrastructure assistance, no or low-interest financing, free land, tax credits and other financial resources.
Success Cases These cases apply to all those clients to whom we have carried out a Mexico Feasibility analysis, to know what their cost of operation is in an accurate way, and from there to be able to make the decision to settle or not to settle in Mexico. Some examples of current clients who started with this service, and did decide to establish or not are the following: Example 1: Taiwanese manufacturer of components and systems for motorcycles and vehicles The analysis resulted positive and the company decided to open its manufacturing facility in Leon, Guanajuato.
Example 2: Canadian manufacturer of packaging products for food and consumer products The analysis resulted positive but required the company to modify their strategy to start in Mexico with something more modest. Example 3: Dutch manufacturer of rugs for the automotive industry After an origin analysis, the company decided to pause its investment plans due that the analysis showed that its materials were considered as a non-NAFTA originals.
Challenge No 3. Understanding and adapting company culture to Mexico PRODENSA Network We have operations all over Mexico, so our team knows how every corner of the country walks and talks, what moves and drives them. Mexico’s extensive territory is a as diverse as it can get, which makes it especially important to understand each community in order to find the right match for your company’s culture.
Experience Understanding We’ve been on the block for more than 35 years working with over six hundred clients from all kinds of industries from all over the world. Our success comes from having experience understanding each and one of our clients and being able to match them with the right workforce helping their company’s culture permeate them and making it their own.
“Culture is the name for what people are interested in, their thoughts, their models, the books they read and the speeches they hear.” - Walter Lippmann
Learn With Us An important point of being part of our community is that we communicate, constantly and always with relevant information that will help you stay on top of the different situations that may impact you and your operations.
Success Cases EXAMPLE 1 An automotive industry company was supported by Prodensa to perform a Human Resources study in order to understand the culture and best practices in Mexico and adapt the company´s culture in order to successfully hire their key workforce and maintain an outstanding turnover percentage for their operation. EXAMPLE 2 An automotive Industry company was supported to generate proper workforce management strategies in order to maintain a healthy relationship with their employees and the union.
EXAMPLE 3 An automotive industry company was supported by Prodensa to generate appropriate internal work rules for they operation along with a successful negotiation with the union in order to run operations smoothly. EXAMPLE 4 An electric Industry company was supported by Prodensa to select the right operating structure in order to have a successful taxes, finance and international trade compliance strategy for their operations in Mexico.
Challenge No 4. Understanding labor Economically Active Population (EAP) in Mexico.
75%
Employed ppulation by gender.
60.4%
Of the population in Mexico is of working age.
Of the population in Mexico is of working age.
62%
38%
MEN
WOMEN
EAP employed by age.
22%
7%
14 - 19 years 20 - 29 years
45% 30 - 49 years 50 - 59 years
Students graduated by state and academic area. Engineering, Manufacturing and Construction.
5% Services
33%
8% 12%
16%
20%
10%
60+ years
EAP employed by industry.
1% 1% 4%
16%
33%
17% 8% 7% 5% 5%
Estado de México y Ciudad de México Veracruz Puebla Coahuila Guanajuato
Commerce
20% Manufacturing
16%
IT
29% 5% 5% 5% 4%
Estado de México y Ciudad de México Puebla Jalisco Veracruz Nuevo León Business and Administration
Others
Electricity
Government
Transport and Communication
Construction
Agricultural
1%
1%
4%
5%
8%
12%
Success Cases EXAMPLE 1 An automotive industry company was closely supported during their softlanding to understand labor regulations in Mexico that helped to design succesful recrutiment policies to hire capable workforce for their operations.
23% 7% 5% 5% 5%
Estado de México y Ciudad de México Jalisco Veracruz Puebla Guanajuato
% Percentage of Total Graduates by Area.
EXAMPLE 2 An automotive industry company included a new production line in their operation with a challenging request for new employees and Prodensa supported to hire operative personnel increasing their headcount 70% (63-107) even considering the regular turnover of the operation to succesfully begin with their new production process.
Challenge No 5. Understanding and identifying the supply chain Developing a business case and scenario-planning review for your operation as well as for your current and backup supplier network is imperative to any strategy execution. Applying a multi-factor assessment to analyze cost, volume, standardization, value risk, etc., to your supplier network will give the foundation for scenario-planning and network optimization that will increase competitiveness.
If you currently have a supply base in China, evaluate what options you may currently have for supply chain agility. Consider the necessity to bring suppliers to North America or develop local, existing supply bases in key value chain areas.
“We have multiple clients pursuing options for flexible and secondary supply chains, investing in feasibility studies for multiple supply chain alternatives, to see what options they have. It´s not enough to evaluate current market situations like taxes and tariffs and try to adapt to current market situations. You must develop multiple scenarios because the global market is in constant and accelerated change,” mentions Jorge Ortega.
It´s extremely risky to rely on just one provider. “We have seen entire value chain shifts from the impacts of just one company´s decision to relocate. When a key provider must make tough decisions for survival, it´s definitely going to affect others. If you rely on a limited supply base, you put yourself at risk, even if you maintain great relationships. Identifying alternatives is the only way to be agile and proactive in today´s market, and that is translating to competitiveness among global companies.” – Carlos Alvardo, VP & Sr. Partner / Strategic Advisor of Prodensa Consulting Services.
Success Cases EXAMPLE 1 An aerospace company that started operations in Mexico in 2015, doing aerostructures form OEM’s, was directly impacted by the tariff dispute between the US and Mexico, as one of their main raw material was steel and other metals that were now classified as sensitive and had an increase in import duties. After a thorough analysis, the International Trade Compliance team defined 2 strategies that minimized the impact of the import duties: 1) Changing the raw material from raw steel to steel components that were duty free according to their HTS code and regional value, and 2) Identifying local vendors in Mexico that were able to provide the same quality of certified steel for minor assemblies.
EXAMPLE 2 When the earthquake and tsunami hit the industrial areas of Japan in 2011, several Japanese companies with operations in Mexico were left with no inventory of raw material and with increasing purchase orders from their customers in North America. In a team effort and taking advantage of Prodensa’s national network and coverage, most companies were able to identify national vendors to meet their increasing demands, as the Mexican facilities were the only ones to continue operating as their corporates in Japan were forced to shut down due to the natural disasters.
With
35 years of experience,
GRUPO PRODENSA has been involved in the start-up
of over 600
projects.
Our culture is the key of our success
=philosophy +knowledge +execution
+600 Employees
AWARDS
With over 600 customers...
...these are some of the most recent. • Ball • BIA • Boge • Elastomix • Elkem • Elrad • Gaches Chimie • Generac • Julian Electric • Latecoere/Latelec • Lauak • Matthews International
• Maysteel • Mexin • Nortek • Penstone • Perlick • Shimtech • Sunnen • Taigene • Tube Specialties • US Wire • Villa International • Xinlong
Some of the industries we work with
AEROSPACE
AUTOMOTIVE
CHEMICALS
FURNITURE
HOME APPLIANCES
HVAC
PACKAGING
PLASTICS
ELECTRONICS FOOD & BEVERAGE
MEDICAL
TEXTILE
METALMECHANIC
ICTs
You can reach us at contact@prodensa.com
www.prodensa.com