In 2019, approximately 31% of all plastics manufacturing happened in China. As Plastics Today reports, some global distributors at that time required potential vendors to produce plastic goods in China. With today’s global supply chain disruptions, that stance has shifted. Those same distributors now won’t work with vendors that don’t have at least one plastics supplier outside of China. A diverse, regionalized footprint is becoming essential in every manufacturing sector, plastics included.
In exploring opportunities beyond China, Mexico emerges as a clear first choice. It offers manufacturers a strong supplier network and proximity to the world’s largest consumer market. Mexico’s reasonable real estate and labor costs provide an opportunity to offset rising resin prices while also offering easy proximity to resin providers along the Gulf Coast. As of 2022, Mexico saw an annual plastics production value of more than USD $25 billion and exports in the range of $15 billion. That stands poised to grow as more plastics manufacturers seek to diversify their global footprint.
Challenges to launch in Mexico
Plastic manufacturers must overcome a few challenges as they shift production to Mexico. Some manufacturers find that mold companies are less prevalent in Mexico compared to China. However, startup partners and organizations, such as the Queretaro Plastics Cluster, exist to connect plastics manufacturers with partners and solutions. As approximately 4,000 plastics companies already operate in Mexico, from northern Sonora down through central Queretaro, it’s likely that someone has already asked this same question or developed an answer.
For some companies, the cost has become a concern in selecting a site in Mexico. As more companies explore nearshoring in Mexico as a solution to a range of business challenges, many begin their site search in the northern border cities. In these well-known nearshoring locations, manufacturers are finding the demand for industrial space and labor is outpacing availability. However, working with a site analysis partner often leads companies to manufacturing hubs further to the south. These locations still provide easy accessibility but at more competitive costs.
Companies are more likely to face challenges in leaving manufacturing operations in China than launching in Mexico, according to experts with the international law firm Harris Bricken. In a webinar on moving manufacturing from China to Mexico, Dan Harris, an attorney with Harris Bricken, explained that the process of exiting China can be risky. The biggest risk, Harris says, is the danger of losing access to company assets and intellectual property. Announcing plans to leave China before relocating all molds, tooling, and personnel can increase the likelihood of loss.
Simplify your launch with a shelter company
Harris noted in his webinar that “Mexico isn’t set up for every type of international company operating in China,” citing an expectation that companies in Mexico are expected to own their own factory. The truth is that Mexico is not necessarily set up to support the same culture of contract manufacturing as found in China. Instead, it offers an easy model for entry into the market that lowers manufacturing risk while delivering greater control over product quality.
When it comes to plastics manufacturing in Mexico, companies find it most effective to own their production processes and operate through a shelter service provider.
What is a shelter services provider?
A shelter service provider is a company registered through Mexico’s IMMEX shelter program to serve as the legal entity of record under which a foreign company can conduct business in Mexico. The shelter service provider typically manages administrative and legal tasks related to the foreign manufacturer’s business. The foreign company oversees all production-related activities.
This model offers a number of advantages, particularly when it comes to tax advantages and duty-free import of materials. Working with a shelter service provider also allows manufacturers to shorten their speed to market. Shelter service partners might offer Class A real estate or help in your search for suitable space. They assume all permitting and manage regulatory requirements necessary to launch your operations. They also support recruitment with efforts tailored to local expectations. With all this support and more, shelter service providers allow manufacturers to focus solely on production-related tasks.
Maximize plastics manufacturing opportunities in Mexico
According to the U.S. International Trade Administration, the packaging and construction sectors are driving growth in Mexico’s plastic market, accounting for 47% and 12% percent of the market, respectively. Mexico’s strong automotive and aerospace sectors are also creating opportunities to innovate with plastic materials. Both sectors are focused on the “lightweighting” potential of plastic components for improving fuel efficiency, and this is spurring greater demand for supply chain partners.
This is part of a broader trend toward R&D activities in Mexico, said Martin Toscano, CEO of specialty chemical company Evonik, in an interview with Mexico Business News. As the plastics industry takes shape in Mexico, chemical companies and other upstream suppliers can better support their partners’ innovation.
This innovation is spread across Mexico, with clusters found in Coahuila, Sonora, Jalisco, Nuevo León, Puebla, Querétaro, Guanajuato, San Luis Potosí, and Mexico City. An experienced site selection partner like Tetakawi can help your company determine the right site for maximizing industry advantages.
With so much opportunity available, it’s clear that now is the time for plastics manufacturing companies to expand into Mexico. If you’re ready to create your low-risk model for entry into Mexico, contact Tetakawi today.
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