Top Site Selection Criterion to Consider when Expanding in Mexico

Mexico offers a range of benefits to manufacturers ready to expand their international footprint—but specific benefits vary depending on the site selected for your manufacturing operations. Selecting that site demands balancing considerations including accessibility, staff expectations, benefit norms and local costs.

Working with a third-party organization well versed in local trends can help identify specific areas with the right level of accessibility, a workforce prepared to meet your unique needs and real estate costs that fit your budget. However, whether or not you select a partner for your search, you’ll want to consider the following factors to determine the right site for your future manufacturing facility.

Customer and Supply Chain Proximity

More than 56% of maquiladoras—foreign manufacturers in Mexico—are located in one of the six Mexican states bordering the U.S.: Baja California, Sonora, Chihuahua, Coahuila, Nuevo Leon, and Tamaulipas. While that close proximity to Mexico’s largest trading partner is beneficial, an additional 44% of manufacturers have found success further afield in the other 26 Mexican states, including Mexico City. Accessibility is a huge deciding factor in site selection, but companies looking to ship product to the United States can weigh the value of close access with potentially lower staffing costs further south.

No matter the location, organizations should examine prospective sites for their proximity to major highways, land ports of entry, airports, seaports, and rail spurs. After all, location is important when considering proximity to both the supply chain and customers. In many cases, manufacturers benefit from locating within an industrial cluster.

For example, aerospace manufacturers tend to locate in one of five main hubs in Baja California, Sonora, Chihuahua, Queretaro and Nuevo León. Meanwhile, Baja California has the largest cluster of medical device companies (67), while Chihuahua, Coahuila, Nuevo León, Jalisco, Sonora, and Tamaulipas closely follow. These local hubs support the dense growth of specific supply chain needs as well as the training of local workers.

Real Estate Decisions

If you’re looking to build a manufacturing facility to meet specific needs, you’ll also want to weigh local construction costs. Prospective tenants, on the other hand, should examine average rental costs.

And what about utilities and logistics infrastructure? Consider, Expastian puts the cost of utilities for two people in Tijuana (never mind an energy-intensive manufacturing facility) at MXN $1,587 versus MXN $938 in San Luis Potosí. If your facility is aiming for a sustainable footprint, that difference may not matter. Instead you may want to weigh the availability of local subsidies for using renewable energy.

The site selection process also should evaluate the advantages and disadvantages of operating in one of three general types of locations: a standalone building, a building within an industrial park, or a building in a manufacturing community.

A standalone building may be necessary for a manufacturer looking to build to spec a new facility. Starting from scratch provides a high level of freedom in obtaining a specific end. However, location in an industrial park typically offers the benefit of built-in access to ports, railroads and specific electrical, gas or large-volume water supply. A manufacturing community goes a step further by combining Class A industrial space with embedded manufacturing support services. Finding the right fit in either of the latter two options is, of course, subject to availability and affordability.

Staffing Considerations

Each region has a unique labor profile. You’ll want to identify a site that is likely to have availability in the skillset you need at a wage you can afford. You may want to consider proximity to educational institutions and local training support. While locating in a specific cluster—such as the automotive manufacturing cluster in the Central Bajío Region—means you’re more likely to attract workers with a specific skillset, it also means a more competitive environment that could impact average wage and benefit expectations as well as turnover rates.

Consider, Tijuana’s proximity to Southern California means that prospective employees know their manufacturing skills are in high demand. As a result, turnover for the area’s direct labor employees is moderately higher (approximately 7%) than other regions of Mexico. Meanwhile, nearly 40% of the working population in Monterrey earns up to three times Mexico’s average minimum wage due to the greater level of experience in precision manufacturing compared to other regions. Manufacturers will need to weigh their needs for experience against wage expectations and local demand.

Some manufacturers find success in locating further afield from a crowded manufacturing hub. But that comes with its own trade-offs. For example, because the Saltillo region is relatively crowded with manufacturers, some manufacturers opt for a site  10 miles beyond the outskirts of the region in Derramadero. However, that area has minimal housing so employers still often compete with companies in Saltillo for workers who then must be bused in.

If locating outside a dense urban area, it helps to focus recruitment strategies on specific neighborhoods. By bringing in workers from a few specific neighborhoods, you can lower employees’ or the company’s cost of providing transportation to and from work. This tactic also can increase referrals.

A balancing act

Once you’ve narrowed down your needs or are weighing among a few site considerations, it’s time to get a firm handle on the costs of a potential site. A manufacturing cost model analysis can help you gain confidence in your Mexico site selection decision.

It’s also important to remember that any site selection decision will demand certain immediate trade-offs. For this reason, focus foremost on the long-term benefits of locating at a specific site. While site selection may impact costs early on, the success of your manufacturing operation ultimately depends most strongly on your management style and the product you’re bringing to market.