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Become more competitive by manufacturing in Mexico

By Xavier Hurtado Mexico’s Manufacturing Facilitator villava@mexikoconnection.de www. ManufactruingInMexico.com


About American Industries Group

American Industries Group is a private  Mexican company that has helped  over 200 global companies to  successfully establish and run  manufacturing operations throughout  Mexico since 1976 through Site  Selection, Administrative “Shelter”  services and Industrial Real Estate. 


Our Locations & Score Card El Paso Juárez Gómez Farias Chihuahua Delicias

Monclova

Camargo Reynosa Gómez Palacio & Torreon Saltillo

Monterrey

San Luis Potosi Guadalajara Silao

Querétaro México D.F.

Regional Offices, Shelter and/or Real Estate Customers Shelter and/or Real Estate Customers

Real Estate

Shelter &  Start‐up Services • • •

42 Customers. Over 7,000 Customer’s headcount Over 30,000 trouble‐free import  and export transactions per year. 

• • • • •

Over 11 M Sq. Ft. Portfolio. Full Mexican Market Coverage 9 Industrial Parks 90 Buildings 89 Customers


What we’ll cover today: •

10 Reasons to Manufacture in Mexico

5 Steps to do Site Selection in Mexico

5 ways to start up your manufacturing operations in Mexico

1 Step to get a Free Cost Model simulation for Mexico


Leveraging Mexico’s advantages for your profitability

10 REASONS TO MANUFACTURE IN MEXICO


10 Reasons to Manufacture in Mexico 1. Immediate access to the US market. 2. Immediate re-manufacturing turnaround. 3. Skilled, available and affordable labor: up to 80% in savings 4. Technical training support: Schools, R&D and training centers. 5. Quality culture: ISO, AS, NADCAP. 6. Solid Manufacturing Clusters & Supply Chains: more than 3,000 foreign companies doing business in Mexico. 7. Tariffs savings: free Trade Agreements with 44 countries 8. Legal certainty for Intellectual Property 9. Tax incentives: No VAT and NO Income Tax under the Shelter Programs. 10.Developed “Soft-landing� culture to help manufacturers start up operations in Mexico in a fast-track, risk-free shelter programs.


Bombardier Success Story

Bombardier opened its new plant in Querétaro Aerospace Park, with an investment of 255.9 million USD. This project will generate approximately 1,105 direct jobs.

The Learjet 85 is a project surrounded by technological innovation, the use of new compound materials for the production of structures such as the fuselage, wings, control surfaces, among other pieces, will facilitate the creation of a completely different airplane from the current Learjet models.

The production of the first Learjet 85 prototype is an achievement for the Mexican aerospace sector.


Myth: Everything in Mexico will be inexpensive

Facts: •

Labor will be very inexpensive – up to 80% in savings compared to certain locations in North America.

Utilities, logistics, real estate leasing and utilities will be about the same costs as in the US.


Myth: There is low quality in the  labor force in Mexico

Facts: •

The labor force in Mexico is trained to meet international quality standards at technical training centers or at their own academic institutions.

Manufacturing plants have gotten their certifications in ISO 9000, NADCAP, AS and other certifications on their first attempt.


Aerospace Manufacturing Quality in Mexico Mexico is one of the few countries that has entered into a bilateral agreement for the mutual recognition of aeronautical certification - BASA (Bilateral Aviation Safety Agreement) with the U.S. Federal Aviation Administration (FAA), while companies operating in Mexico have certified their procedures in keeping with industry standards, such as ISO – 9001, AS 9100, and NADCAP (National Aerospace and Defense Contractors Accreditation Program).

Mexico offers you the Available, Skilled and Affordable Talent you need for your Aerospace Manufacturing operation


Myth: Security in Mexico is a  threat to manufacturers

Facts: • Manufacturers have not been threatened since they do not handle cash in their day-to-day operations. • Manufacturers already established in Mexico have not left the country, but they have expanded or plan to expand their operations in Mexico.


Mexico – Global Leader in Aerospace Manufacturing Investment Attraction

Mexico reported 232 aerospace companies that employed more than 30,000 workers in 2010, and primarily serve the US, Canadian, German and French markets

Source: Aerostrategy


Aerospace Clusters in Mexico


Aerospace Clusters and Supply Chain Integration


Labinal – Safran Group

Labinal operates two plants in the state of Chihuahua that are focused on electrical systems. The future plan is to bring other service lines to Mexico, thanks to the positive experience the company has enjoyed operating in Mexico over the last 20 years, where the great advantage has been based on Mexican engineering talent. Labinal is the company that offers the largest number of jobs in the entire sector, with more than 2,000 employees including engineers and technicians.


Automotive Industry Numbers & Trends Mexico’s Light Vehicles Exports 

Mexico is the #1 Autopart supplier for the US

Mexico took the 8th place among the top 40 Vehicle producers on a global level! International Organization of  Motor Vehicle Manufacturers (OICA)


Automotive Clusters in Mexico


Automotive Clusters and Supply Chain Integration


Ford – Success story

Diesel engines plant in Chihuahua with an investment of 800 million USD, this being the first time that the diesel engine is being manufactured in America with flexibility for vehicles which can use alternative fuel.


Medical Devices Clusters in Mexico


Other Industries that have grown in Mexico:

From OEMs and assembly operators to Tiers 3 • Appliances • Engineering Design • Electronic • Food • Heavy industry • Metal Mechanical • Multimedia • Petrochemical & plastics • Pharmaceutical • Software • Textile


Mexico is the most cost effective location for US companies as far as labor and freight 2011 US Manufacturing-Outsourcing Cost Index


Elements to consider to find the most cost-effective location

5 STEPS TO DO SITE SELECTION IN MEXICO


Site Selection Process

Understanding the Project Project Scope

Company Objective

Corporate Criteria

Regional Site Selection Cities Rough Cut

Site Rough Cut

Cost Analysis

Evaluation Matrix

Final City Selection

Specific Site Selcetion Cost Analylsis Evaluation Matrix

Final Site Selection

Due Dilligence

Selected Site


Understanding the Project • Project Scope: What? – Product, Facility Size, Volumes, Equipment, Headcount & Skills,  Utilities & Consumption, Raw Material(s), Supply Base,  Customer(s)...

• Company Objective: Why Mexico?  – Cost reduction, Proximity to Customer(s), Logistics, Suppliers....

• Corporate Criteria – – – – –

Time Frame Buy or Lease Existing or BTS Facility Project Confidentiality / Company Exposure City Profile  • Border, interior, big, small.

– Expat Quality of life – Outside or Inside Industrial Park – Curb Appeal


“Information IS NOT

‐ Albert Einstein


Key Factors to consider for Regional & Specific Site Selection:          

Business Environment Labor Demographics Academic Infrastructure Quality of Life Political Environment Geography & Climate Accessibility Supply Base Infrastructure


Key Factors to consider for Regional & Specific Site Selection:  Business Environment • Labor • Demographics • Academic Infrastructure • Quality of Life • Political Environment • Geography & Climate • Accessibility • Supply Base • Infrastructure

• • • • • • • •

Turnover Rate Absenteeism Labor Environment Unemployment Rate* Labor Availability Labor Culture / Vocation Union Presence Established Companies & Competitors


Key Factors to consider for Regional & Specific Site Selection: • Business Environment  Labor • Demographics • Academic Infrastructure • Quality of Life • Political Environment • Geography & Climate • Accessibility • Supply Base • Infrastructure

• Availability • Skills • Fully Loaded Cost


Key Factors to consider for Regional & Specific Site Selection: • Business Environment • Labor  Demographics • Academic Infrastructure • Quality of Life • Political Environment • Geography & Climate • Accessibility • Supply Base • Infrastructure

• Population • Total • Economically Active • Average Age • People Entering the Workforce


Key Factors to consider for Regional & Specific Site Selection: • Business Environment • Labor • Demographics  Academic Infrastructure • Quality of Life • Political Environment • Geography & Climate • Accessibility • Supply Base • Infrastructure

• • • • •

Universities Community Colleges Technical Schools Training Centers Research Centers


Key Factors to consider for Regional & Specific Site Selection: Business Environment Labor Demographics Academic Infrastructure  Quality of Life • Political Environment • Geography & Climate • Accessibility • Supply Base • Infrastructure • • • •

• • • • • • • • • • •

Residential Areas Country Clubs Lodging Restaurants Hospitals Shopping Malls Convention Centers Cultural / Sport Activities Financial Services Bilingual Schools & Universities Expat Community


Key Factors to consider for Regional & Specific Site Selection: Business Environment Labor Demographics Academic Infrastructure • Quality of Life  Political Environment • Geography & Climate • Accessibility • Supply Base • Infrastructure • • • •

• Attitude towards business • Incentives • Political party in power


Key Factors to consider for Regional & Specific Site Selection: Business Environment Labor Demographics Academic Infrastructure • Quality of Life • Political Environment  Geography & Climate • Accessibility • Supply Base • Infrastructure • • • •

• • • • • •

Topography Temperature Humidity Prevailing Winds Rainfall Elevation


Key Factors to consider for Regional & Specific Site Selection: Business Environment Labor Demographics Academic Infrastructure • Quality of Life • Political Environment • Geography & Climate  Accessibility • Supply Base • Infrastructure • • • •

• Airports • Commercial / Cargo • Domestic / international flight’s frequency

• • • • • • •

Main roads connections Railroad connections Distance to other cities Distance to the port of entry Parcel services Freight services Freight costs • • • •

Air Land Rail Sea


Key Factors to consider for Regional & Specific Site Selection: Business Environment Labor Demographics Academic Infrastructure • Quality of Life • Political Environment • Geography & Climate • Accessibility  Supply Base • Infrastructure • • • •

• Services • Maintenance • Special processes • • • • • • •

Heat treatment CNC Machining Chemical Tool & Die Casting Injection Molding NDT Other

• Metrology • Laboratory

• Raw Materials.


Key Factors to consider for Regional & Specific Site Selection: Business Environment Labor Demographics Academic Infrastructure • Quality of Life • Political Environment • Geography & Climate • Accessibility • Supply Base  Infrastructure • • • •

• Industrial Parks • • • • • •

Location Available Buildings Available Land Building Lease Rate Land Prices Rail Spur

• Utilities • Water • Potable • Treated

• Sewage • Electricity • Tension (Low, High, Mid)

• Natural Gas • Telecommunications • Copper, Fiber, Wireless


Cost Analysis

For both the Regional & Specific Site Analysis, operating cost scenarios must be determined by considering the following: + + + + +

Labor Process Utilities Freight, Customs & Logistics Building (Lease Rate, Triple Net, Utilities, CAM Fees) Administrative

= Monthly Operating Cost & Fully Burdened Cost/hr


Evaluation Matrix

City / Site / Building Option A

Option B

Option C

Key Factors

 Company defines priorities & weights of the  factors to be considered


Due Diligence

After selecting a site, a due diligence process is required:  Zoning  Ownership  Utilities Feasibility  Water  Sewage  Electricity  Natural Gas

 Permits & Registrations

 Easements  Site Studies  Soil Mechanics  Topographic

 Environmental Studies  Phase One  Phase Two


Local Knowledge is Key to :

 Obtain up-to-date & detailed information  Clearly differentiate pros and cons of the available options  Avoid unnecessary problems & costly mistakes before and after the operation.


Different ways to leverage Mexico’s advantages for your operations

5 Business models to start manufacturing operations in Mexico


5 Business models • Finding a Joint Venture  Partner • Acquiring an existing  operation • Starting up with a  Stand Alone operation • Contract  Manufacturing • Starting up with a  Shelter Program


5 Business models  Finding a Joint Venture  Partner • Acquiring an existing  operation • Starting up with a  Stand Alone operation • Contract  Manufacturing • Starting up with a  Shelter Program

– They might be experts to do business in Mexico – They might speed up the start up process due to local networking – They might be well connected to help you import & export – You do not have full control of your operation – You have the risk of losing your intellectual property – You will face liabilities in Mexico in case of any mistakes or problems with the operations


5 Business models • Finding a Joint Venture  Partner  Acquiring an existing  operation • Starting up with a  Stand Alone operation • Contract  Manufacturing • Starting up with a  Shelter Program

– Employees will already have the needed training for your process – Legal and operational permits might already be compliant – High entrance cost – You will be responsible for all the previous and ongoing legal and operational liabilities


5 Business models • Finding a Joint Venture  Partner • Acquiring an existing  operation  Starting up with a  Stand Alone operation • Contract  Manufacturing • Starting up with a  Shelter Program

– You will have full control of your operation – High entrance cost – High and costly learning curve – Lack of local networking – High risk and liabilities for all legal, labor, fiscal and customs start-up and operational permits (functions that are not your core business)


5 Business models • Finding a Joint Venture  Partner • Acquiring an existing  operation • Starting up with a  Stand Alone operation  Contract  Manufacturing • Starting up with a  Shelter Program

– You will never have control of your production – You risk your intellectual property


5 Business models • Finding a Joint Venture  Partner • Acquiring an existing  operation • Starting up with a  Stand Alone operation • Contract  Manufacturing  Starting up with a  Shelter Program

– You will have immediate access to the local networking and knowhow to do business in Mexico – You have full control of your operation – You can start up in less than 9 weeks – You can choose to not have a legal entity in Mexico – No liabilities in Mexico: labor, fiscal, legal and other operational permits


Starting up under a shelter program: Legal entities Legal Entity’s Working Framework  Incorporated Operations are performed under clients’ Mexican Legal Entity. This requires a more robust organization and income tax obligations. Recommended only if you are required to invoice your customers in Mexican Pesos

 Not Incorporated Operations are performed under American Industries’ Mexican Legal Entity. It simplifies the compliance with Mexican regulations, translating into important cost savings. You will be exempt from income tax if you do not incorporate in Mexico.

American Industries is able to offer the same scope of services in either framework. Sales in Mexico can be done in both scenarios.


10 things to look for in a Start up Partner or Shelter Program Make sure you get the following benefits: 1. 2. 3.

Free Cost Model Simulation comparing different regions Flexible commitment: on any size project (headcount or Sq. Ft.) No entrance or exit fee at the termination of your contract (with coordinated exit strategies) 4. Fast and worry free start-up operations (9 weeks) 5. Flexibility on how to operate in Mexico: incorporated or not Incorporated 6. Tax Savings: No VAT and no INCOME TAX 7. Billing transparency & no mark ups on purchasing in Mexico 8. Full Compliance Assistance: fiscal, customs, labor and environmental (no red tape and no administrative risk or liabilities) 9. Customs Certified Program: quick processing on cross-border transactions 10. Ask for full administrative support: it will allow you to concentrate 100% on your manufacturing operation, not on human resources recruitment, looking for suppliers and so on.


How much will it cost you to operate in Mexico?

1 STEP TO GET A FREE COST MODEL SIMULATION FOR MEXICO


Get a Cost Model Simulation When you request a Cost Model Simulation, you will be able to compare the total cost per hour of your operations in different regions in Mexico, including the following criteria:  Cost of direct and indirect labor  Cost of shipments to and from the International Ports of Entry  Cost of Real Estate Facility and Utilities  Other costs of operating in Mexico

Request your free cost model today at: http://CostModel.ManufacturingInMexico.com


Sign up for your Free Cost Model Simulation at: http://CostModel.ManufacturingInMexico.com

By Xavier Hurtado Manufacturing in Mexico Facilitator villava@mexikoconnection.de www. ManufacruringInMexico.com


Manufacturing in Mexico