6 Mistakes Manufacturing Companies Make with Site Selection in Mexico
March 26, 2020
Mexico is an excellent option for manufacturers interested in nearshoring or moving their production closer to the United States, but not every state offers the same benefits, and not every site will be right for every manufacturers’ needs. Site selection in Mexico demands that investors carefully balance a range of criteria to ensure they’re investing in a location that best can serve their goals, and balance sheet, for potentially decades to come.
Unfortunately, many companies ready to expand fall into avoidable traps that can quickly sink a project. To ensure you select the right site for your expansion, check these six site selection mistakes off your planning list.
1. Not setting clear expectations
The first step? Start the process of site selection in Mexico with a firm grasp of your ultimate goals. By beginning with the end in mind, executives are better able to narrow down which sites will best serve their needs.
This also means ensuring all stakeholders in the decision are on the same page. One strategy for ensuring alignment in the site selection team is to list important criteria and weigh them to determine what’s truly most important. Do you prioritize cost-effective labor or logistics? Do you need infrastructure already in place or room to expand? While the final answer is likely to center around a combination of factors, it’s essential to identify that upfront. Ignoring this critical step can lead to a disorganized process that wastes time and money.
This is one of many areas where a site selection consultant can help. Often these consultants can act as a facilitator who works to bring project stakeholders onto the same page.
2. Ignoring site biases
Stakeholders are likely to come into the site selection process with individual opinions about what makes an excellent site. They may be basing these opinions on other companies’ successes or on a fraction of available data. These opinions are examples of bias that could steer projects away from potentially well-qualified sites or toward sites that may not meet the company’s needs.
If stakeholders begin the site selection process with one or two sites already in mind, it’s helpful to dig into the reasoning behind these preferences. By exploring these biases early, and comparing these opinions against the established project expectations, investors can take a more objective look at potential sites. From there, it’s best to stick to data to ensure sites stack up to project needs.
3. Selecting a site with poor logistics
Getting your product to market as efficiently and cost-effectively as possible should be key. Therefore, it’s important to evaluate sites early on based on the available logistics. If you’re exporting goods, it’s important to ensure there’s easy access to your customer base and that the cost of transporting those materials won’t cut into any potential cost savings.
Consider the availability of a local supply chain as well. In Mexico, some regions have developed strong economic clusters centered around specific industries. For example, the aerospace cluster in Queretaro is home to OEMs, Tier 1, 2, and 3 suppliers and a university devoted to training for these manufacturers. Automotive clusters in the Bajio region, Saltillo and Monterrey, have cropped up around OEMs to more efficiently produce certain automotive components. New manufacturers in Mexico interested in building upon those logistical efficiencies will want to identify a site within an industrial cluster with ample opportunity and low impact from the competition.
4. Selecting a site without appropriate futureproofing
Manufacturers expanding into Mexico may be used to operating in a location with considerable size constraints, either from a lack of available real estate or a high cost per square foot. This can limit investors who may be focusing only on their current needs, rather than looking at long-term flexibility. By discussing long-term goals early in the site selection process, the search team may find that the cost efficiencies gained through nearshoring can accommodate more capacity than you might expect.
5. Not performing appropriate due diligence
Companies eager to expand may be tempted to act upon a great real estate deal, but the site selection decision is way bigger than the real estate decision alone. Picking a site based on real estate sale price alone may ignore, for example, the overall costs of having to perform environmental or geotechnical due diligence procedures to bring the site into compliance with local regulations. There are plenty of other costs to factor in as well: the cost of transporting labor to the site, developing infrastructures or bringing in utilities, freight costs, and more. Doing your due diligence before committing to a piece of real estate can save millions over time.
6. Selecting a site without a long-term pipeline of available talent
Sure there may be a strong workforce available today, but if you’re planning for a facility that will be around for the next few decades, you’ll want to take a look at the bigger demographic picture. Are people moving in or out of your targeted region? What training and education opportunities are available? What’s the average age of the regional workforce? Consider, too, the level of current and future competition. Are there other companies in your field eyeing this region for possible expansion? Simultaneous launches could deplete the local labor force and send you searching further afield for talent or push you to raise your wages beyond the local average.
Work with an experienced partner
There are plenty of other pitfalls that an expanding manufacturer might face, but many of these can be avoided by taking a more objective look at your site selection process. This is an area where it can pay to bring in a third-party consultant to provide unbiased insight and uncover considerations your executive team might have missed.
When it comes to selecting the right site for manufacturing in Mexico, Tetakawi can help. We can provide the data you need to make an informed decision on site selection. Learn more by contacting us today.
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