Once you’ve decided to take advantage of the benefits of manufacturing in Mexico, the next step is determining an entry strategy. Of the several models that your company can choose from, the shelter modelis the most cost effective and risk averse way to expand into Mexico.
What is the Mexican Shelter Model?
The shelter model came into use in the 1980s as a way to reduce the risk and financial exposure associated with entering Mexico directly or with a joint venture partner. Simply put, the shelter model of entry allows a foreign company to operate in Mexico through a “shelter” provider that handles all of the administrative tasks related to manufacturing while allowing the foreign company to focus 100% on production.
The mexican “shelter” company acts as the legal entity of record in Mexico for compliance-related matters, and also maintains relationships with many of the local partners needed to run the operation. The foreign company is then free to concentrate on engineering, process improvements, and quality control, as well as the many other production-related aspects of the business.
Of the five ways to manufacture products in Mexico, the shelter model is one of the easiest to implement. The term “shelter” implies protection from exposure to the risks of going it alone, especially concerning labor, trade, and tax laws. The shelter model is considered a beneficial entity type by the Mexican government, given its ability to facilitate foreign investment. Companies using this model are, therefore, awarded various income, consumption, and import/export tax benefits.
How does the Shelter Model make Manufacturing in Mexico easier?
Newcomers to the manufacturing landscape in Mexico have many challenges to overcome, including finding the right local support networks, sourcing the best talent, and managing the regulatory and fiscal burdens of establishing a new business in a foreign company. Rather than taking on these hurdles alone, a shelter service company allows you to benefit from the experience of a well-versed partner.
Shelter Model Benefit #1: Flexibility and Scalability
Essentially, the shelter model allows you to provide the equipment, machinery, and production expertise while your shelter provider handles the structure, facility, and service aspects of the business. You can build your operation to your company’s specific specs and scale administrative services, square footage, and labor as needed.
One of the main attractions of the shelter model is the ability to make use of tax benefits afforded by the Mexican government. Foreign companies operating through a shelter provider can receive incentives from Mexico’s income and value-added tax authorities. These incentives include a four-year abatement on income taxes and a nine-year release from the requirements of permanent establishment in Mexico.
Additionally, tax and compliance implications related to manufacturing in Mexico are complex and ever-changing. At Tetakawi, we offer tax and accounting services that include the assumption of all fiscal liability, responsibility for compliance with all regulations, and accurate filing of reports with the proper authorities.
Shelter Model Benefit #3: Easily Managed Labor
Your manufacturing operation is unique, and so are your workforce needs. Working with a service provider that has access to local talent networks makes recruiting candidates for specific industries and functions much more manageable. In particular, hard-to-source technical positions, workers with niche skills, and experienced mid-level labor are highly demanded but potentially hard to find for standalone entities. As a qualified service provider with an extensive network of over 24,000 employees, Tetakawi helps source employees and fill positions for companies using us as a shelter provider.
Building strong relationships with local unions and adequately complying with Mexican labor law are two business aspects more easily managed with the help of a shelter provider. At Tetakawi, our teams seek a balance between client and union interests to develop terms favorable to both parties. Additionally, we maintain regular contact to address any conflicts or disputes that may arise involving unionized workers.
How can Tetakawi help as a Shelter Service provider?
Working with us as your provider offers a cost-effective, low-risk way to set up your manufacturing presence in Mexico. We act as the employer and manufacturer of record in Mexico. In addition to providing a comprehensive legal framework, we address the majority of business functions outside of production. Choosing to work with Tetakawi means that you have the freedom from administrative distraction – so your team can focus on producing the right products at the right time and the lowest possible cost.
To learn more about our shelter services,contact usto speak with an expert, get your questions answered, and get started on your journey to manufacturing in Mexico.
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