Manufacturing in Mexico: A Private Equity Guide to Execution, Scale, and Exit Readiness

The Stakes: What Execution Failure Looks Like in Real Terms

Missed expectations around Mexico expansion don’t just affect one quarter. They ripple through the entire investment lifecycle:

• Delayed value creation: Slow ramp means longer breakeven, slower IRR, and deferred investor confidence.

• Distracted operators: Teams pulled away from core operations to troubleshoot expansion.

• Compliance risk: Exposure to labor violations, tax errors, or regulatory non-compliance.

• Buyer concerns: At exit, incomplete or messy Mexico operations become red flags for acquirers.

In short, failed execution in Mexico puts real dollars and real enterprise value at risk.

Yet, with the right model, these risks can be mitigated and turned into real drivers of margin, speed, and buyer appeal.

Understanding the Entry Models: What the Market Offers (and Omits)

Once Mexico is on the table, the next question is: how do we do this?

There are four primary models companies use to enter Mexico. Understanding the nuance and limitations of each is critical, especially for private equity firms balancing execution risk, speed, scalability, and return timelines.

Let’s break them down.

1. Contract Manufacturing (CM)

In this model, you outsource production to a local third-party CM. It can be a fast way to launch, with minimal up-front investment. For some industries and non-core products, it can be a useful interim step.

However, unlike China, Mexico does not offer the same depth or breadth of contract manufacturing infrastructure. The ecosystem is narrower, especially in high-mix, low-volume or high-spec production. Finding a partner with capacity, capability, and alignment is far more difficult.

As a result, many PE-backed companies explore CM in Mexico, only to abandon it after struggling to find a suitable fit. In most cases, they default back to the status quo—keeping production in the U.S. or Asia—and miss out on the benefits Mexico could unlock.

Pros:

• Fast to implement

• Minimal internal setup

Cons:

• Limited control over production

• Challenges with IP protection

• Margin compression due to outsourcing fees

• Difficult to customize processes or scale over time

• Lack of partner depth compared to Asia

Bottom line: CM works well for overflow or low-value SKUs, but in Mexico, the model rarely scales. For most PE-backed firms, it proves too shallow, too constrained, and ultimately too risky to justify.

2. Standalone Entity

This is the greenfield approach. Companies form a legal entity in Mexico and build the operation from the ground up, just as they might in Eastern Europe, Southeast Asia, or other emerging markets. You own the land or lease the property, handle all permitting and licensing, hire a team, and manage every compliance requirement directly.

Pros:

• Maximum control over operations

• Freedom to design processes, facilities, and organizational structure

Cons:

• Timeline to operational readiness is long (12–18+ months)

• Significant internal resources and expertise required

• Risk of setting up structures that are difficult to unwind at exit

• High exposure to regulatory, tax, labor, and safety compliance risk

Strategic Consideration: When done well, a standalone operation may become a lasting asset. But if not properly scoped or managed, it can become an obstacle to value realization. Many PE-backed firms underestimate the time, cost, and operating discipline required to build a greenfield in Mexico. Worse, these entities are often difficult to clean up or restructure for a future buyer, especially when documentation, permitting, or tax treatment is inconsistent.

Bottom line: A standalone entity may be attractive to multinationals. But for PE-backed firms looking for speed, repeatability, and clean exits, it’s the riskiest and most resource-intensive path.

3. Traditional Shelter Provider

The shelter model is unique to Mexico. It allows foreign manufacturers to operate without forming a local legal entity by using a host company to manage administrative and compliance functions.

On paper, it sounds like a solid middle ground. In practice, the experience varies dramatically.

Many shelter providers offer a wide range of services, geographies, and levels of engagement. That flexibility is marketed as a benefit, but often leads to fragmentation and inefficiency. Because the shelter doesn’t manage execution end-to-end, you’re often left stitching together:

• Real estate leases

• Labor recruiting

• Logistics partners

• Union management

• EHS permitting

Additionally, shelter providers tend to serve clients who are widely spread out across locations, reducing their ability to build meaningful economies of scale, scope, or learning in one place. There’s limited compounding of institutional knowledge, no shared labor pools, and no operational density.

In effect, they help you assemble the puzzle, but they don't put it together.

You still own the integration. You still run the coordination. You still carry the risk.

Pros:

• Reduces legal and administrative complexity

• Allows faster entry than a standalone model

Cons:

• Execution remains fragmented

• Limited leverage or repeatability across clients

• No shared operational infrastructure or learning across accounts

• You're still the one coordinating vendors, timelines, and risks

• Providers do not typically share downside risk or take responsibility for on-time delivery

Bottom line: Better than building from scratch, but far from turnkey. The burden of execution remains largely on your plate—with little upside in terms of operational scale or strategic leverage.

4. Manufacturing Communities (Tetakawi)

Tetakawi’s Manufacturing Communities are a modern evolution of the shelter model—but rebuilt from the ground up to eliminate inefficiencies, reduce risk, and deliver scalable, repeatable success.

Unlike traditional shelter models, which require coordination between multiple vendors and still carry a significant execution burden, Tetakawi’s model integrates everything into a single, cohesive platform.

Everything is handled under one U.S.-based contract.

What you get:

• Move-in ready Class A Industrial Real Estate

• Embedded labor recruiting and retention

• On-campus support for HR, compliance, logistics, EHS, tax, and more

• Campus-contained amenities: security, transportation, training, medical

• Institutional learning and repeatability

Financial Structure Advantage: With Tetakawi, you benefit from a variable cost structure. Unlike fixed-cost models that require upfront investment, you pay only for what you use. We absorb the cost of building, staffing, and scaling.

In other words, the cost of growth is on us.

Pros:

• Fastest path to operational launch (2–6 months)

• Fully managed services with one point of accountability

• No need for legal entity or vendor integration

• Built-in economies of scale, scope, and learning

• Assignable at exit, with clean audit trails

Bottom line: This is not a workaround or service bundle. It’s a platform designed to turn strategy into action, without compromise, without delays, and without the friction that typically derails value creation.

What Private Equity Firms Need to See

Once the entry model is selected, private equity stakeholders shift their focus to performance, operational certainty, and exit clarity. Execution is only as effective as its alignment with the factors that drive internal confidence, investment committee buy-in, and buyer attractiveness.

Tetakawi’s model was built to directly support those outcomes for Private Equity Firms considering expanding into Mexico: