Costing Mexican Manufacturing Operations is an Important First Step

Knowing that Mexico manufacturing costs are advantageous is one thing. Having solid numbers in hand, that confirm this, before making a decision is another.

This subject is in Chuck Yahn’s wheelhouse. Yahn is director of operations for The Offshore Group, which is a Mexico’s largest shelter company. Such firms provide services that enable businesses based outside of Mexico to enter the country at reduced cost and risk, allowing them to focus on their core manufacturing competencies.

Yahn, who has had a hand in starting manufacturing plants in 10 countries, several of them having been in Mexico – says The Offshore Group’s formula for costing a Mexican manufacturing facility covers all anticipated expenses for starting an operation in Mexico.

The matrix takes into account wages paid to different classifications of workers, such as technicians, QC inspectors, non-skilled workers and others. The Offshore Group works closely with Mexican labor unions to ensure benefits meet the country’s labor laws, making electronic calculations to determine overall Mexico labor costs. Intensive surveys conducted within geographical regions verify wages are competitive.

“In essence, we’re benchmarking against multiple companies in our geographic areas,” Yahn explains.

To stay abreast of minimum-wage increases, Yahn notes Mexico manufacturing salary surveys are conducted regularly.

According to maquilareference.com, a reference source for Mexico’s maquiladora industry, the country’s minimum-wage commission this year set a 4.2-percent increase for all three geographic zones – slightly above the previous year’s increase of 4.1. This translates to $4.60 a day for zone A, which includes the states of Baja California, Baja California Sur and Mexico City as well as some municipalities of the states of Chihuahua, Mexico, Sonora and Tamaulipas Veracruz. (Other geographic zones’ minimum wages are slightly less.)

Still, besides labor, there is real estate to consider. The Offshore Group’s costing in regard to lease pricing is determined not only by the cost of the industrial building in Mexico but also maintenance, insurance and property taxes – with even air conditioning and transformer costs factored in. Other important Mexico manufacturing cost considerations include common-area fees; utilities, such as electricity and phone; water; brokerage fees; freight; maintenance; and The Offshore Group’s fee for its Mexico Shelter Plan services. (In addition to helping set up the business, company advisers also provide manufacturers with Mexican environmental compliance assistance, as well as services that preclude its clients’ direct dealing with Mexican taxation authorities.

Because The Offshore Group pays the bills for all the expenses incurred in Mexico by manufacturers utilizing its Mexico Shelter Plan – other than raw materials and products used in producing final merchandise – “we do know the categories of expenses Mexico manufacturing plants have and how much is spent for each category. The numbers that we use to estimate prospective client costs are absolutely real world.” Yahn affirms.

“We help people not to make mistakes, and that’s regardless of whom they choose to do business with in Mexico.”

Executives considering a manufacturing move to Mexico would only incur travel and lodging expenses to visit one of The Offshore Group’s Mexico industrial parks to determine a true cost analysis. A reputable site-selection consulting firm providing “information similar to what we offer may cost in a range from $100,000 to $250,000,” Yahn notes.

After meeting and touring the Mexican manufacturing facility, The Offshore Group will benchmark against a prospective client’s information to provide accurate cost estimates.

“Typically we find that visiting manufacturing executives are surprised at how inexpensive the Mexico option is when compared to what they are currently experiencing in their existing facilities,” Yahn says, noting that “all-in” Mexican manufacturing costs often comes in at one-fifth to one-seventh of the cost of manufacturing in the United States.