When evaluating whether to manufacture in Mexico, it’s wise to consider customs issues such as import duties and taxes in order to accurately calculate your total landed cost.
For example, items produced and assembled by maquiladoras (or contract manufacturing companies) in Mexico are eligible for preferential customs duty rates, some as low as 0%, when working through the IMMEX program.
Mexico’s IMMEX (or maquiladora) program enables companies to temporarily import materials so they can be manufactured into goods and then re-exported without payment of taxes and compensatory quotas. Under IMMEX, companies can avoid the General import tax and the pricey VAT tax, which can be as high as 15%.
But in order to qualify, these goods must first be classified to meet certain Rules of Origin requirements, described here on the NAFTA Certificate of Origin form provided by the U.S. Department of Homeland Security.
Most of the Rules of Origin criteria have to do with whether the raw materials come from a NAFTA member. If so, duty fees are waived. But because the language is complex, it can be easy for an inexperienced manufacturer to make a mistake that can blow out your bottom line.
MFI International works closely with clients to evaluate and classify raw materials and goods correctly.
Even if your product doesn’t qualify for preferential import duty rates, MFI’s Corporate Custom Broker Jorge Fierro advises, you can still work through these other avenues:
Mexico’s PROSEC (or “promotional sector”) program provides specific industries, such as automotive and medical, with reduced duty rates as low as 0%.
Regla Octava allows the maquiladora to petition the government for a 0% duty rate.
Industry-specific programs, such as a “Tariff Preferential Level" also known as TPL’s, permits Mexican manufacturers to import materials temporarily without preferential import duties.
To learn more about special customs duty rates and Mexico trade incentives, visit our post entitled “Understanding the Maquiladora Program and NAFTA’s Role,” or call an experienced MFI International specialist at 866-918-2260.
Two of the most frequently asked questions we hear from new clients about manufacturing in Mexico are: What can I expect from crossborder logistics and U.S./Mexico Customs? And what, if anything, could go wrong during shipping?
MFI International is a full-package, or “turnkey” manufacturer, which means crossborder logistics are built in to our service contracts for U.S./Mexico clients.
Simply put, MFI handles your incoming raw materials at our U.S. warehouse, arranges the Customs paperwork for crossborder shipping, delivers the materials to MFI’s Mexico factories where they’re assembled (as part of our cost-savings strategy), then transports the finished product back (FOB or “Free on Board”) to our El Paso, Texas warehouse for a reasonable cost, where you arrange for its freight out to your customer destination.
At every step, MFI provides essential crossborder coordination to prevent costly glitches.
For example, it’s critical that a shipment’s Tariff Classification be handled correctly. Tariff classification determines the duty rate and whether the good is eligible for NAFTA savings.
Why This Matters: If a product is classified incorrectly, the client (you) could incur penalties, or lose out on valuable NAFTA or other preferential treatment reductions.
That’s why it’s important to choose a seasoned turnkey manufacturer who has extensive experience with U.S. and Mexican Customs authorities, and can ensure that your products receive the proper tariff classification and trade incentives.
MFI not only finesses these, we are also the first manufacturer of textile assemblies in Mexico with our own corporate Mexican Customs broker.
Jorge Fierro, who coordinates all crossborder and Customs activities for the company with the Mexican government, explains, “It’s a huge benefit. It speeds up the entire process and makes it far more efficient because we control every aspect and do not need to rely on an outside Mexican broker.”
We’ll be answering more FAQs about manufacturing in Mexico and crossborder logistics in future entries here on our blog. To stay up to date, subscribe at the top right of the page.
Is now the time to change your outsource manufacturing strategy? What would such an endeavor cost, and how cost-effectively could it be accomplished? Learn the benefits, cost, logistics and security of manufacturing products in Mexico this June 11-13 at an upcoming Dallas, Texas conference called “Nearshoring Mexico 2013.”
Nearshoring Mexico 2013 gathers business leaders from AlixPartners (consulting), Accenture (consulting), DHL (logistics) and our own MFI International (hands-on Mexico manufacturing) as well as government trade officials for intelligent discussion of topics critical to successful manufacturing and delivery. Total landed cost, supply chain alignment and effective security are just a few of the issues scheduled for discussion.
MFI is further pleased to announce that CEO Lance R. Levine will be participating at Nearshoring Mexico in a June 12th forum entitled "Security Best Practices", addressing key issues of Mexico's supply chain management such as:
Lance has more than 40 years in the manufacturing in Mexico and is deeply familiar with Mexican compliance and best practices procedures.
As far as security and cost concerns, current manufacturing heads say they’re as comfortable manufacturing in Mexico as they are in the U.S. A new AlixPartners survey reveals 37% of executives say they would choose Mexico as their preferred location for nearshoring (defined as moving production of products closer to the U.S. consumer base). An equal number, 37%, of executives also cited the U.S. as an equally attractive homeshore base.
AlixPartners, a global business advisory firm, continued to report that Mexico and India have overtaken China with cost advantages of 15% to 20%, similar to the levels China enjoyed over other low-cost countries in the early 2000s.
To learn more about Nearshoring Mexico (June 11-13 in Dallas), visit: www.infocastinc.com/nearshoring13.
To learn more on how MFI International MFG., can assist in your nearshoring manufacturing to Mexico strategy, contact us here.
Ever since China announced it would start increasing its wages by 13% each year through 2015, there’s been a lot of chatter in the global trade publications about production and assembly returning to the U.S. or to manufacture in Mexico.
While U.S. companies manufacturing in China and abroad are obviously said to be in favor of the “offshoring” trend, those selling to the U.S. market who prefer using bordering countries are engaging in “nearshoring.”
However, in 2012, the proverbial buzzword stew got considerably thicker as excited analysts sliced and diced off a slew of new terms to describe businesses’ return to the U.S. or their attempts to outsource manufacturing across various markets.
As a result , we now have reshoring, on-shoring and right-shoring. As we’ve discussed in previous MFI blog posts, the smartest, most cost-effective business model for you comes down to your company’s individual priorities:
Your product: Big or small? Labor-intensive or high-tech? For instance, large-scale merchandise like cars are easier to ship cross-border. Electronic components are better-suited to manufacturing abroad. But top-quality demand products like high-end textile components and medical devices are well-supported by supply chains and skilled workers in Mexico.
Cost of shipping and fuel: Once oil reached $100/barrel, offshoring’s benefits no longer look so rosy. Can you afford the high cost of long-distance fuel prices?
Skilled and affordable workforce: Can Asian factory workers complete products up to your standards?
Speed to market: Approximately 1 week from Mexico to Western markets; as much as 6 weeks from Asia or abroad.
Tax and tariff incentives: More than 43 countries enjoy free trade agreements with Mexico.
Can you come up with a better marketing term for moving production closer to home? Share it in our comments section and win the admiration of your peers.
Over the past 10 years, the manufacturing industry has expanded globally as brands outsourced their manufacturing needs and assembly to far-shore but low-cost, developing countries. But now, there’s a new production movement afoot, according to a report by the Massachusetts Institute of Technology Forum for Supply Chain Innovation.
The new business paradigm urges manufacturers to: Think globally, act regionally.
“We are in the middle of a transformation from a global manufacturing strategy, where the focus is on low-cost countries, to a more regional strategy, where China is for China and perhaps other emerging markets, U.S. (or Mexico and Latin America) is for the Americas, and Eastern Europe is for European markets,” concludes Professor David Simchi-Levi, founder of the MIT Forum.
Simchi-Levi surveyed 340 companies concerning their location plans for the future. An impressive 49% of U.S. manufacturing companies said they were considering re-shoring jobs, the MIT Forum reports in "U.S. Re-shoring: A Turning Point."
The companies’ top reasons for relocating their operations were:
Cost Reductions (63.9%)
Product Quality (62.2%)
More Control (56.8%)
Given the high cost of oil and transportation, U.S. manufacturers hoping to expedite their time to market would be well-served to look to Mexico for their manufacturing and delivery needs. Cross-border fees between Mexico and the U.S. are low, allowing companies to ship freight back and forth relatively inexpensively. Short assembly and shipping times (less than a week) also mean greater flexibility for manufacturers who require quick turnaround or need to meet rapidly changing market trends.
Cost reductions can also be found in Mexico’s affordable workforce (approximately $5.20 USD/day per worker vs. $22.50 an hour, including $4.50 in benefits, for U.S. workers). While product quality in Mexico is among the best in the world.
When planning your sourcing strategy, what are the top factors you consider?
For most companies interested in manufacturing cost reduction the No. 1 answer is: total landed cost.
Total landed cost includes the purchase price of raw materials, freight, insurance, and other costs up to the port of destination. In some instances, it may also include customs duties and other taxes. Manufacturing expenses like wages and overhead also come into play.
In the past, China has excelled at providing low manufacturing and material costs, but fallen short when it comes to speed to market (freight and delivery) and taxes and customs duties. China’s VAT (value-added tax) rebates and reductions can fluctuate from as much as 5% to 17%, depending on which trade sectors it wants to promote (tires one year, others the next).
But Mexico affordably solves most foreign manufacturers’ total landed cost concerns. Here’s how:
Under the maquiladora permit, raw components can be imported tax-free from the U.S. or provided at reasonable cost by nearby suppliers
Mexico’s workforce is competitive with China’s labor (around 64.76 pesos per day or approximately $5.20 USD/day)
Near-shore North America delivery is fast and convenient
Export taxes and duties with the U.S., Canada and more than 40 other countries are waived or significantly reduced thanks to Mexico’s numerous free-trade agreements
Auto parts and medical device manufacturers are well-supported in Mexico. The textile industry [sewn products] may also have the most to gain from a move to Mexico.
Find out how manufacturing in Mexico can benefit your sourcing strategy. MFI International has more than 30 years experience in contract manufacturing and shelter services in Mexico, and can efficiently implement your operation. For more information, call 866-918-2260.
The maquiladora city of Juarez, Mexico experienced growth of 23,000 new manufacturing jobs, or 9%, from 2011-2012, according to city statistics from the Mexican Social Security Institute (IMSS).
Maquiladoras, or assembly plants, make up a large part of the city’s growing industrial center. More than 300 maquiladoras are located in and around Juarez, including several of MFI International’s operations. The city is appealing to plant investors because of its four international ports of entry, located just south of El Paso, Texas, and Santa Teresa, New Mexico.
The area’s major employers come from several different industries. In computer assembly: Wistron and Foxconn provide assembly work for Apple, Dell and HP.
Automotive manufacturers include: Delphi, Lear, Johnson Controls, Yazaki and Bombardier, which has an assembly plant for recreational vehicles in Juarez.
Household products maker Electrolux has a refrigerator, washer and dryer assembly plant in Juarez. And medical company Johnson Controls has a large operations presence in the area, along with other medical device manufacturers.
All of these brands are taking advantage of Juarez’s nearshore location, skilled labor, and low transportation costs. Several have committed to building or expanding plants over the next 10 years, and most are constantly seeking suppliers closer to their Mexican operations.
Also credited for the recent jump in Juarez business are political changes, falling crime rates, and increased security, according to a CNN report from January 2013. Last December, Mexico welcomed a new leader, President Enrique Peña Nieto, into office. Nieto promised to boost the number of police in Mexico.
MFI has also strengthened its presence in Mexico by increasing security at its shelter service and turnkey contract manufacturing plants, especially in its supply chain. The company adheres to CTPAT (Customs –Trade Partnership against Terrorism) certification and procedures, and participates in biweekly security committee meetings between AMAC (Association of Maquiladora plants in Mexico) and police (state, federal, and city).
In a survey by AMCHAM Security of 6,000 companies doing business in Mexico from 2011-12, most reported that they expect the security situation in Mexico will continue to improve in the future.
For a clear, comprehensive picture of manufacturing and security in Juarez, download and read our report, “Security in Mexico: The Industry Experience,” and the Juarez manufacturing profile here.
Favorable macroeconomic conditions have positioned Mexico in a positive trend for manufacturing. In 2012, according to a new report by The Manufacturers Alliance for Productivity and Innovation (MAPI), Mexico’s manufacturing industry grew 3.7%.
Economic analysts say U.S. manufacturers and investors should continue to look to Mexico for their long-term manufacturing plans. The country will also further offset China’s labor costs by closing the wage gap in 2015, according to The Boston Consulting Group, a global management consulting firm. In 2013, the minimum wage in Mexico increased by 3.9%. This brings the cost of labor to around 64.76 pesos per day (equaling approximately $5.20/day). Since 2009, labor costs have increased nominally -- less than 4% on average per year.
In Mexico’s manufacturing industry, labor cost rate varies depending on the type of industry, skills and benefits. For example, the cut-and-sew industry is a highly labor-intensive operation employing Mexican labor; manufacturers can see the cost benefit here:
“Clients can typically add $1M to their bottom line per 50 employees for medium to low skilled manufacturing operations compared to the U.S.,” reports Fatih Akben, Director of Business Development at MFI International, MFG., LLC”.
Mexico offers competitively paid yet highly skilled workers, convenient, near-shore delivery, and attractive trade incentives. In addition, MFI’s flexible manufacturing services can make your transition fast and cost-effective. We have more than 30 years manufacturing experience in Mexico and can streamline your manufacturing strategy with ease.
For a detailed evaluation of manufacturing cost savings vs. your U.S. or China operations, contact us: www.mfiintl.com.
For North American manufacturers, nearshore Mexico offers a desirable, product assembly-and-shipping location and a skilled, cost-effective workforce. But with the news headlines about drug cartel violence in Mexico, you may have safety concerns about doing business in the region.
Rest assured. Some Mexican manufacturers take your concerns and the safety of clients’ business extremely seriously. In fact, no one is more vigilant about client, product and employee security than Lance R. Levine, CEO of MFI International.
Lance has more than 40 years in the manufacturing business, so he’s intimately familiar with Mexico’s trade routes, and its stability. MFI has plants in El Paso, Texas, and Juarez, Mexico, next to the Texas border, managing turnkey manufacturing and shelter operations.
Recently, Lance spoke to a group of manufacturers to help separate the facts from fiction concerning Mexico’s image. They were pleasantly surprised to learn that:
Fact: MFI’s thriving maquiladora industry has been untouched by cartel violence, which is 96% gang-on-gang motivated.
Fact: The number of companies that have left Mexico because of cartel activities is 0. In fact, more major auto companies, such as Audi, Honda, and Mazda, have committed to Mexico’s manufacturing industry since the cartel’s peak in 2008. And in 2011, Mexico’s auto production hit a record 2.56 million units, according to The Wall Street Journal.
Fact: Since 2011, maquiladora jobs in the city of Juarez have actually grown by 8.7%.
On December 1, Mexico welcomed a new leader, President Enrique Peña Nieto, into office. Nieto met with U.S. President Barack Obama last month and pledged to increase the number of police and military enforcers in cartel-heavy cities. As a precaution, MFI has also upped its commitment to employee, client and product safety by:
Increasing the security of its Mexico manufacturing plants, especially the logistic supply chain.
Adding CTPAT (Customs –Trade Partnership Against Terrorism) certification and procedures.
Participating in biweekly security committee meetings between AMAC (Association of Maquiladora plants) and police (state, federal, and city).
Mexico continues to be the preferred nearshore location for cost effective product assembly despite security concerns. To get the facts about Security in Mexico and the industry experience, visit and review MFI's presentation for yourself.
How much can manufacturing in Mexico save you? According to accounting firm KPMG, U.S. medical device manufacturers conserved up to 23.3% in 2011. Those savings will be even more valuable next year if the 2.3% U.S. medical device excise tax takes effect in January 2013.
Medical device manufacturers should want to keep quality and R&D up, and look for other areas to keep costs down. Our affordable Southern neighbor, Mexico, is skilled and ready to meet these and more of your medical device production needs. Mexico is the leading exporter of gloves, gauze and bandages; the third-largest exporter of tubular metal and suture needles; the fifth largest exporter of medical, surgical, dental and veterinary instruments and devices and the sixth-largest exporter of mechanotherapy, massage and related equipment, putting it on a par with major global actors in the medical device in according to the Global Trade Atlas. Last year, it produced $8,562 million in medical devices and the industry is expected to grow at an average annual rate of 6.4% between now and 2020, according to Negocios magazine, a Promexico news edition.
Mexico also has "development capacity and highly-skilled, competitive” workers. There are some 16 universities in Mexico offering degree courses in Biotechnology and Biomedical Engineering and more than nine related postgraduate courses," the trade magazine reports.
Under our convenient contract manufacturing services, MFI assists U.S. and other outside medical device manufactures produce products for wound care, seating, therapeutic support surfaces, and other soft goods. Our manufacturing clients enjoy cost savings, a well-trained and skilled workforce, and quick and convenient turnkey service (we provide your materials, manufacturing, package and even ship to end clients).
In addition, the Mexican government, through the Federal Commission for the Protection Against Sanitary Risks, adheres to the requirements, tests and other procedures approved by the U.S. Food & Drug Administration and Health Canada.
Are you interested in learning more about medical device manufacturing in Mexico? Click here to compare your costs with Mexico's manufacturing here.