Running an industry can be a financial tightrope, with soaring costs and taxes threatening to erode your profits. This is where an offshore industrial facility, or ‘maquiladora,’ comes in.
An industrial facility in Mexico can help you streamline operations, reduce costs, and get tax benefits that can increase your revenue. You also get access to several benefits, such as a set-up-for-you operation and state-of-the-art infrastructure.
What Is a Maquiladora?
A maquiladora is a production facility that imports raw materials, components, or semi-finished goods, such as equipment, machinery, spare parts, and tools, duty-free or at reduced rates for manufacturing purposes.
These facilities capitalize on factors like favorable tax treatments, trade agreements, lower labor costs, and increased proximity to key markets like those in major Canadian cities like Toronto, Quebec, and Calgary.
How Does the Maquila Process Work?
- The parent company provides the maquiladora with the required machinery, equipment, and raw materials to carry out the industrial process. These temporary imports are duty- and tax-free.
- After receiving the necessary materials, the maquiladora manufactures the requested goods and draws up an invoice for the total expenses.
- The maquiladora exports the finished product back to the parent company without being subject to any VAT.
How Does a Maquiladora Differ From a Regular Factory?
There are several key differences between regular factories and maquiladoras. For instance, factories can be found in various locations worldwide. However, maquiladoras are limited to designated industrial zones or parks.
Maquiladoras also enjoy trade advantages like duty-free or reduced tariffs and simplified customs procedures. In contrast, factories typically have to navigate trade barriers and steep tariffs. Moreover, maquiladoras mostly produce goods for sale in international markets and are more manufacturing-oriented compared to factories, which typically focus on regional or internal markets.
What Are the Five Categories of Maquiladoras?
The Maquila, Manufacturing, and Export Services Industry (IMMEX) Program enables Canadian investors to reduce labor costs, improve revenue, and reap fiscal benefits like tariff- and tax-free production by offshoring their manufacturing processes.
Under the IMMEX Program, maquiladoras must be able to invoice exports for at least 10% of their turnover or have annual sales of $500,000. However, once companies clear this step, they can be registered in five ways.
1. Industrial Program
The industrial program is for companies that use imported materials for export goods production or industrial manufacturing.
2. Holding Program
The holding program is for one or more companies that act as a single entity or a ‘holding’ company during the manufacturing process.
3. Services Program
The services program is for companies that perform export services or produce export-only goods. They may also manufacture sensitive items.
4. Shelter Program
The shelter program is for Mexican companies that import raw materials, mechanical components, and technology from a company in Winnipeg, for instance, and perform the industrial production process on their behalf. Once the products have been semi-finished or complete, they’ll be exported to the company for further processing.
5. Outsourcing Program
The outsourcing program is for companies who lack the proper infrastructure to manufacture goods, so they outsource the process to third parties registered under the IMMEX Program. These produce the necessary goods and ship them back to the parent companies.
What Are Some Benefits of Operating a Maquiladora?
From cost savings to access to skilled labor, there are various benefits to operating a maquiladora. Let’s take a look at five of them:
1. Lower Operating Costs
Labor costs are not at a premium in Mexico, unlike those in Vancouver or Toronto. This means it costs less to hire more workers, which lowers operating costs and makes production more affordable.
Plus, companies are exempt from paying duties to the Canadian and US governments when they export products labeled with ‘Made in Mexico’ tags. This also contributes to lower expenses and leads to higher revenue.
2. Access to Skilled Employees
The unemployment rate in Mexico is high due to a lack of jobs. So, setting up a maquiladora near several Mexican towns provides Canadian companies access to a vast labor pool consisting of both skilled workers and people looking for work experience.
3. High Employee Retention
Maquiladoras provide stable employment opportunities in towns where job prospects are limited. This stability attracts workers looking for long-term job security, increasing the chances of them staying with a company for years.
For instance, a company setting up a manufacturing unit in Edmonton might find people may not want to work for too-long hours. But if it does, the hiring costs might be prohibitive.
However, if the company sets up a production facility in Mexico and keeps its main office in Edmonton, it might be able to attract skilled workers by offering competitive wages and benefits compared to the local market.
4. Improved Supply Chain Management
While maquiladoras can be set up in various locations across Mexico, they’re mostly found near shipping ports, railroads, roads, and airports. This increased proximity to strategic locations lowers transportation expenses, reduces lead times, and streamlines production by eliminating bottlenecks, enhancing overall supply chain efficiency.
5. Faster Startup
Maquiladoras are tricky to set up due to international laws, treaties, and agreements. Luckily, shelter service providers like Tetakawi make the process easy by providing you with local data, notifying you of registration and permit processes, and giving access to technical know-how to operate ready-for-you manufacturing plants. This can reduce the money and time spent on making your presence known to as few as thirty days.
Looking to Set Up Operations in Mexico?
If you’re thinking of expanding into Mexico to reduce your manufacturing expenses and up your production game, Tetakawi can introduce you to the ropes. With more than thirty-three years of experience helping hundreds of companies maximize their entry into the Mexican industry, we’ve mastered the combination of admin, tech, and compliance that makes companies successful in Mexico.
Plus, we remove the issue of having to get a permanent establishment status, which means you can start production right away. So, if manufacturing costs are becoming prohibitive in Winnipeg or Victoria, a maquiladora set up by Tetakawi can just be the solution you’re looking for.
Sign up and stay informed with tips, updates, and best practices for manufacturing in Mexico.