If your company has decided to launch a manufacturing operation in Mexico, you may be wondering how to get started. Though the process may seem complex, the easiest way to get up and running as a foreign company in Mexico is to use the shelter service model. In this post, we'll explore its many advantages, discuss how to choose a provider, and cover everything you need to know about shelter services in Mexico.
Manufacturing communities in Mexico offer foreign companies a turnkey solution for establishing their manufacturing operations. These dedicated industrial parks provide a range of benefits, including access to Class A industrial real estate, on-site support services, and a shelter legal framework.
By setting up operations within a manufacturing community, companies can benefit from economies of scale, streamlined administrative processes, and enhanced infrastructure. These communities serve as hubs for manufacturing excellence, fostering collaboration and innovation among industry players.
Additionally, being part of a manufacturing community facilitates access to local talent pools, supply chains, and logistical networks, further enhancing operational efficiency and competitiveness. Overall, manufacturing communities provide a comprehensive solution for foreign investors looking to establish a presence in Mexico's vibrant manufacturing landscape.
Let's start at the beginning – what is a shelter company in Mexico? Defined simply, a shelter company is a service provider that allows a foreign company to conduct business in Mexico under a specific set of guidelines. Under Mexico's shelter service program, the shelter company manages the administrative and legal tasks related to the business, while the foreign company focuses on its core business: manufacturing.
Shelter manufacturing and shelter services in Mexico have been well-established for years through the "maquiladora" program in Mexico. When foreign manufacturers set up a maquiladora (the Mexican term for a foreign-run manufacturing facility) through the IMMEX shelter program, they avoid much of the red tape generally associated with starting a Mexican company.
You can learn more about maquiladoras and the history of the maquiladora program in Mexico here.
More specifically, the shelter company serves as the legal entity and employer of record in Mexico for all compliance-related concerns. Companies who choose to operate in Mexico with the help of a shelter services provider are exempt from permanent establishment in Mexico and can get immediate access to IMMEX, IVA, and OEA Certifications. Additionally, the shelter company maintains relationships with local business partners, such as labor unions, suppliers, customs departments, and government entities, among others.
What services does a shelter company provide? Typically, companies offering shelter services in Mexico manage all administrative functions critical to the business's overall success but not core to the specific manufacturing operation. Some of the services commonly provided by a shelter company include handling of:
Depending on the manufacturer's needs, a shelter services provider may also handle several other functions like training and project management. Overall, the shelter services provider's role is to reduce the administrative burden and allow the foreign company to focus on areas of competitive advantage: engineering excellence, improvements to the production process, and quality control.
A company's strategy for entry into Mexico is dependent on many factors, including budget, capability, logistics, market, and management preferences. There are many ways to begin, whether a company chooses to go at it alone or seek various levels of help with the manufacturing process.
Typically, foreign companies moving manufacturing to Mexico (or setting up a new operation) do so under one of five conventional entry models: standalone, contract, merger/acquisition, joint venture, or shelter. Each model has advantages and disadvantages and should be carefully considered before a final entry strategy is chosen. To learn more about these different entry modes, listen to our podcast, where we discuss factors to weigh in choosing to most appropriate entrance strategy for expanding into Mexico:
Model |
Definition |
Advantages |
Disadvantages |
The foreign company operates through a “shelter” legal partnership. |
|
|
|
Standalone / Greenfield |
Formation of a standalone entity in Mexico by the foreign company. |
|
|
Contract |
Contract agreement between the foreign company and a Mexican manufacturer for fee-based production. |
|
|
Merger/ Acquisition |
The merger of a foreign company and an established Mexican manufacturer (or the acquisition of one outright). |
|
|
Joint Venture |
Equal partnership between a Mexican manufacturer and a foreign company. |
|
|
As mentioned previously, choosing an entry strategy depends on many factors. Often, cost-related concerns are at the top of the list. The decision to use shelter services in Mexico or establish a standalone entity commonly involves comparing the costs associated with each method.
When evaluating the shelter model of entry, companies often ask, "Does the shelter company's fee exceed the standalone costs to carry out the same services?" This analysis is not always easy. Though the Mexico shelter company fee may be transparent, the standalone cost is dependent on what will be handled in-house and what will be delegated to an outside provider local to Mexico. If handled in-house (e.g., human resources, purchasing, or procurement), what staffing levels are needed, and what does compensation look like for that staff? If outsourced (e.g., legal, accounting, or regulatory compliance), what will the shelter fee structure look like?
For large manufacturing facilities with an anticipated headcount of 750 employees or more, a standalone manufacturing operation in Mexico is not uncommon. With the assistance of Mexican legal counsel, these companies can often create a Mexican corporate subsidiary. Accounting functions and financial reporting can be handled by an external firm or an in-house team.
However, for these manufacturers, and especially for foreign manufacturing companies that operate on a smaller scale, it is tough to duplicate the level of expertise offered by a shelter company for every required function.
Of the five conventional entry models for manufacturing in Mexico, the easiest to implement for most companies is the shelter manufacturing model. As opposed to undergoing the process of establishing a wholly-owned subsidiary, purchasing a Mexican company, or relying on a partner (either as a joint venture or in a contract agreement), using shelter services in Mexico allows total manufacturing control that is unburdened by the headaches of administrative and legal maintenance.
As the legal entity acting on the foreign company's behalf, the shelter service provider drastically reduces the administrative load and serves as the liaison between the ownership company and the various regulatory bodies in Mexico for tax, trade, and labor. The shelter service provider also acts as a knowledge repository, which helps the foreign company understand the many implications and obligations of running a manufacturing operation in Mexico, including:
Because the shelter provider acts on the company's behalf, many of the risks of forming a company and legal entity in Mexico are dramatically reduced. This allows the foreign company to focus on its competitive advantage – manufacturing excellence – with less worry.
When starting a business in Mexico as a foreigner, the knowledge gap is often vast, and the learning curve is steep. Shelter service providers help navigate issues that are unique to the country – such as IMMEX registration and customs compliance – among many other benefits.
The primary advantages of working with a shelter company include:
Beyond these advantages, providers of shelter services in Mexico are experts in other local affairs and more efficiently manage changing needs for warehouse storage space, production square footage, and other types of real estate.
Beyond the overall benefits of using shelter services in Mexico, there are advantages to choosing one provider over another. The services required will be highly dependent on the company's needs, so it is vital to have a good understanding of what is uniquely essential to the operation when selecting a provider.
Depending on the level of direct oversight desired for specific functions, there are six types of providers with varying degrees of service.
Given that there are many types of providers offering many different services, companies looking to manufacture in Mexico must make sure that they are making "apples to apples" comparisons when selecting a provider. As every business professional knows, you get what you pay for. With regard to shelter service fee structures, it is particularly important to be clear on what services are provided for those fees.
Asking the right questions upfront can ensure that you get the right price, receive excellent service, and undertake an acceptable level of risk. Becoming well-informed on a potential provider's methods, solutions, and services means you're better able to match with a partner that offers the protection, guidance, and expertise necessary to get your operations running successfully.
A few important questions to ask include:
For a list of essential questions to ask when choosing a shelter services provider, click here.
If you choose to partner with us, we provide a range of shelter services in Mexico that offer a cost-effective, low-risk way to set up your manufacturing presence. Whether you want to operate in a full-service manufacturing community, benefit from our start-up services or only need help with specific tasks, we have a solution that's right for your company.
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 at the lowest possible cost.
We're here to help you succeed! Whether you have questions about the different modes of entry, are wondering what the costs of starting an operation could look like for your company, or are hoping to learn more about the services shelter companies in Mexico provide, we can get your questions answered. To learn more about how to get started with shelter services in Mexico, or explore our service offerings, get in touch with a Tetakawi expert here.