Even before the recent earthquake-related turmoil in Japan, more and more U.S. companies have been looking for near-shore alternatives to help offset potential disruptions to their global supply chains.
Increasingly, the search is leading them to Mexico, note Source One executives, who recently became the first U.S. business representatives ever invited to speak at the National Congress Manzanillo (CONAMA) 2011, a key international business conference held earlier this month in the state of Colima.
“The opportunities run both ways,” explains Steven Belli, Chief Executive Officer for Source One. “Mexican companies that can demonstrate a high level of industry expertise, creativity and reliability – and are able to market themselves effectively to prospective U.S. business partners – will find that the future is a bright one.”
Belli, along with Source One’s Director of Operations William Dorn, also had the opportunity to meet with numerous representatives from Mexican industry, as well as government officials representing the federal Commerce Department, the Central Bank of Mexico, the Department of Tourism, and a wide number of top university officials who organized the international consortium.
There are three key changes taking place that are helping to guide the development of Mexico as a key near-shore source for supplies and manufactured products, Belli says.
Change #1: “First is the evolution of the maquiladoras,” he explains. Beginning in the 1960s, the Mexican government attempted to foster greater industrial and jobs growth by helping to develop the maquiladora system — assembly plants that were built along the U.S.-Mexico border, to provide U.S. manufacturers with access ability to dependable, high quality, low-cost production services.
“It’s a concept with which many U.S. firms already are familiar,” says Belli. “U.S. manufacturers would work with local Mexican government and business partners to essentially their own manufacturing infrastructures so they could manufacture or assemble products and then reimport them back into the U.S.
Increasingly, however, Mexican officials at the federal level are looking to leverage the advantages that they see as inherent – its geographic proximity, the structural benefits that NAFTA provides, and a young, well-educated and English literate workforce – to develop a more powerful, long-term engine for economic development.”
In many ways, Mexican officials view the recent economic expansion that has taken place in Brazil as a model for Mexico’s future, Belli says.
Change #2: A second key factor is a major change in the tax structure. The more traditional companies established under the maquiladora structures were governed by the older PITEX, which placed various import duties and related taxes on items as they moved among individual factories in the manufacturing process toward a finished product. The more recently enacted IMMEX tax structure reduces or eliminates many of these taxes, thereby allowing more assembly and production to be done by communities of manufacturing facilities working together without being impacted by value-added taxes along the way.
“Obviously, the IMMEX structure represents a huge tax benefit for Mexican manufacturers,” Belli notes. “But in order to leverage the greatest advantage from this opportunity, companies must make sure they meet a specific profile and also complete the necessary documentation in order to qualify.”
Change #3: The third key change that is helping to guide Mexico’s ascension as a competitor in the global sourcing marketplace is the ongoing fine-tuning and implementation of the North American Free Trade Agreement (NAFTA), Bellis says.
When NAFTA passed in 1994, restrictions were placed on Mexican trucks that limited their movement to within 20 to 30 miles of the U.S. border, Bellis says. In retaliation, Mexico placed a number of tariffs on U.S. goods. Recently, the presidents of the U.S. and Mexico met and agreed to lift the trucking bans and tariffs. The new agreement should lead to lower costs and greater ease of movement for goods and products between the two countries.
According to Belli, the benefits that are likely to arise from these key changes should be quite evident to potential U.S. partners:
- A reduction in the cost of manufacturing in Mexico
- The opportunity for cheaper deliveries and a faster, more accurate quoting process
- Greatly reduced lead times for product delivery, thereby enabling U.S. retailers, for example, to enjoy enhanced inventory planning and the ability to more readily capitalize on “hot” products
- Overall, an opportunity for companies to diversify their low-cost company sourcing strategy and further mitigate risk from sources in the Far East.
“There are exciting changes taking place in Mexico today,” Belli notes. But in order to take advantage of them effectively, U.S. businesses need to:
- Make sure they are working with a Mexican business that is properly registered under IMMEX
- Get in early to lock up existing resources that may be limited, depending on their specific focus
- Make the necessary government contacts or work with a partner that has the contacts in order to take advantage of the various programs and initiatives that exist.
Source One professionals have been working with their colleagues in Mexico and Latin America to identify potential suppliers and to assess capabilities for increased business expansion, Belli notes. In addition, Source One has been working directly with potential suppliers to assist them in their efforts to reach out effectively to the U.S. marketplace.
If you are considering “near shoring” as a sourcing strategy for our manufacturing, Mexico might just be the right place for you. Source One has the resources, experience and skills to navigate cultural and technical barriers in order to help you procure in Mexico.