If you’ve decided that the shelter program is the right way for your company to expand into Mexico, the next step is to find the best shelter service provider. Given that there are more than 25 registered shelter service providers in Mexico – all of which offer varying levels of service – it’s important to do your due diligence in selecting the provider that best fits your company’s needs.
Below, we offer tips to help companies determine if the shelter service model is right for them and questions to ask as they vet potential providers.
For more comprehensive insight, listen to our podcast, How to Choose a Shelter Service Provider in Mexico:
About the shelter service model
The shelter service program was set up by the Mexican government more than 30 years ago to incentive foreign manufacturers to operate in Mexico. Through the program, foreign companies do most of the things they would do if they were operating independently, with the exception of administrative activities like HR, Import & Export, Regulatory Compliance, Accounting, etc., which are handled by the shelter service provider. They aren’t subcontracting their production-related activities in any way. They make all operational decisions and direct employees. However, they don't have permanent establishment in Mexico – the shelter service provider does. As a result, manufacturers do not have direct liability in Mexico. That liability is assumed by the shelter provider.
Because the shelter company participates in the IMMEX program – the program established by the Mexican government to help exporters avoid value-added tax and participate in some duty relief programs – manufacturers gain duty-free benefits as well. That said, foreign companies operating under the auspice of this shelter service provider still pay taxes in Mexico, since they're operating essentially as a division of the shelter service provider.
While all shelter service providers offer this liability protection, some offer additional services and, in some cases, industrial real estate.
Criteria for becoming a shelter client
While any company can use a shelter provider's services, in order to enjoy all the benefits of the shelter program, clients must meet a few established criteria:
- The company must have foreign ownership: The shelter program is not open to Mexican companies.
- The company must invest minimum assets in Mexico: Because foreign corporations typically transfer machinery and equipment, raw materials, inventory, and other assets to their operation in Mexico, this is rarely an issue.
- The company must be manufacturing: It’s not enough to simply repackage goods. Your company must be substantially transforming materials or products to qualify as a manufacturing shelter.
- The company must meet IMMEX standards: IMMEX sets requirements around exporting products either externally outside of Mexico or internally between IMMEX companies. The Mexican government determines that it's an export sale based on the use of foreign invoicing. Invoices must come from your home country, although goods can be shipped either internally in Mexico or physically exported outside of Mexico to a customer in another country.
How to find the right shelter company
There are a few ways to begin to build your list of potential shelter service providers. A quick online search is likely to turn up numerous options. Companies can also reach out to the National Council of the Maquiladora and Export Manufacturing Industry (INDEX) for lists of potential shelter providers. Companies should also consider reaching out to their professional network, as many of their colleagues may already be working with a shelter company or know someone who is.
With this list in hand, you can potentially narrow down your options by focusing on those providers who operate in your targeted regions. If you haven’t yet determined a site for your operation, you can instead focus on vetting providers who offer the services that best meet your needs. These services might include recruiting and HR administration, import/export assistance, and compliance support, among other things.
Some shelter companies operate Manufacturing Communities, which are dedicated industrial parks where everybody in the park is a client of the shelter company that owns the park. In these Communities, manufacturers often have access to a more comprehensive service offering.
Companies planning to have 300 or fewer employees will almost certainly benefit from working with a full-service shelter. Large corporations, with more than one thousand employees within the first year, may be better suited to a soft-landing approach, in which the shelter provider may help the corporation navigate with permitting and other startup support.
Read this blog post to learn about the different types of services shelter companies offer.
Questions to ask your short list of providers
Companies might further narrow down their list by interviewing potential candidates to find the one that might offer the right fit. Consider asking:
- How long have you been in business?
- How big is your client base?
- How big are you in terms of headcount?
- Where do you provide services in Mexico? Some manufacturers want to avoid an area where their industry is represented, but most want an area where there's going to be services and suppliers and so on that are serving the industry in which they're operating.
- What kind of services are available at each of your locations?
- Where's your headquarters? Where are your operational centers? Some companies will offer to serve you in any area in Mexico, but that doesn't mean they have an operation center there and in fact might be very far away. It's important to know where are their operations center, how many people are going to be nearby, and where you go when you need help solving a problem.
- Are you a Mexican company or a U.S. company. This has implications for your contract. If it’s a U.S. company, the contract is governed by U.S. law. If it's a Mexican company, the contract's governed by Mexican law. This guides you in terms of how you must proceed when negotiating with that provider. The Mexican legal system is not a common law system like the United States or Canada or Great Britain. It's a codified system. So, there's a significant difference in how things are done.
- What do you do to manage turnover and retain employees? You want to know if they have experience recruiting the skills that you require.
- How do you get to the location of your facility in terms of flights and local transportation?
- What's the logistics like in terms of getting goods in and out? If, for example, port access is critical for your company, that's important to address up front. If you want to be closer to the U.S. border or to particular companies in Mexico, the shelter companies should be able to provide information on your options to determine the right fit.
As these questions help narrow down your options, it’s time to visit. The shelter provider should be able to help coordinate your visit, including showing you to potential real estate options. They should also organize a tour of a current client's operation, which can provide insight into how the relationship works.
What to expect when you find the right shelter company
Once you find a company that seems like an excellent fit – a provider that is a good source of information on operating in Mexico and has people with whom you want to work – then it’s time to sign a contract. The shelter provider uses that contract to advise the Mexican government that this company will be coming in and operating.
As soon as that contract is put in place, things begin to happen quickly. In fact, some companies find they are able to begin operations in as little as 30 days.
To learn more about finding the right shelter company for your needs, listen to the full podcast or .
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