A podcast from the 22nd of March from the Canadian Trade Commission breaks
down the various methods of Manufacturing in Mexico. The Editor of CanadExport interviews Brad Knight of Riverwood Solutions, Brad has over 25 years of experience
with overseas manufacturing and outsourcing.
Even though the Podcast is geared towards a Canadian Market it shows a great breakdown of the multiple ways a company or individual can Manufacture in Mexico. Brad Knight does a great job of taking his years of experience and translating them into an easy to understand interview full of pertinent information about how to choose the best option for Manufacturing in Mexico.
The Podcast starts by mentioning some of the benefits of Mexico as a manufacturing option, information such as the relative high education of the workforce as well as proximity to the large US consumer market ranks Mexico as an attractive option for a Manufacturing facility. “I think that one of the benefits Mexico brings is a substantial, well-educated labor base right next to the largest market in the world.” Brad goes on to mention the low cost of labor as an additional benefit to Manufacturing in Mexico; specifically, “If labor is a significant percentage of your product cost, or you have a significant amount of labor involved in production, then I think you need to be thinking about lower-cost regions for that assembly” What he is saying here is that Mexico really becomes a viable alternative when you have a high labor assembly and can realize that savings in this labor market.
As the Podcast goes on the differences between the do it yourself model, Shelter services, and Contract Manufacturing are discussed. Brad uses examples from his own experience to show the differences between the different options and who they may be best suited for. “I think you really have two choices that are blatantly clear. One is you could build your own facility. Now – well, there’s three. You can build your own facility down there, you can employ a shelter corporation, or you can outsource your product’s manufacturing to somebody else.” In his own experience, he mentions that building your own facility is most often cost prohibitive for small to medium size companies and is most often done by the large multinational corporations. Brad goes on to talk about the differences between a Shelter service and a Contract Manufacturing service. As is stated in the Podcast a shelter service is an excellent way to get started in Mexico if you have the resources to do so. “Well, there are companies in Mexico who will literally, say, own a building. They have infrastructure, power, electricity, sewer, water. And you can come in and say I would like to rent 4,000 square feet from you. Maybe it needs to be air conditioned, I need 250 employees. And that shelter company will hire the employees for you, they will manage the employees, they will manage the facility infrastructure. You bring in your technical competence and your product, and perhaps your capital equipment, and you have a ready-made facility sitting there for you. link checker . It’as a nice stepping stone to getting into your own facility. So, some big companies even use a shelter company as a way to enter a market. Because in the end, if it does not work out for you, really all you owe is a long-term lease to the shelter company.”
As for Contract Manufacturing in Mexico; Brad breaks down the main difference between a Shelter operation and a Contract Manufacturing Operation. ”
But with the contract manufacturing solution, they price by unit price. They come back and say your handset is a hundred dollars if you buy 10,000 of them, it’s 97 cents if you buy a hundred thousand of them. So, it’s much easier for you to run your business with the known variables of cost per product than it is the unknown variables of infrastructure.” Essentially the way the costs are calculated is the main difference, as Brad mentioned the variable costs are the defining factor for some companies when making their decision.
Mexico and it’s manufacturing options offer a wonderful alternative for a globally competitive labor source with a location that can serve all of North America as well as the rest of the world. With these three options, there is a way to bring your high labor manufacturing operation into Mexico and start realizing savings immediately.