Top Manufacturing in Mexico FAQ Categories:
Expanding into Mexico
Mexico today is the 8th largest manufacturing economy in the world and ranks 7th in the world. The growth of Mexico’s manufacturing industry comes from a skilled labor market, low-costs, and market access to industry powerhouses.
In 2017, the country exported a total of USD $409.5 billion. The top exports were vehicles and vehicle parts, electronics, agriculture, optical technical and medical devices, plastics, gems and precious minerals.
As a member of 13 Free Trade Agreements with 45 countries, Mexico has access to the global market, as well as a growing domestic market.
Yes! There are thousands of foreign companies manufacturing in Mexico and programs put into place that make sure employees, equipment, and operations are secure and safe.
Learn more about Mexico's security certifications
There are a few ways to setup a manufacturing presence in Mexico, depending on logistics, labor, and supplier needs.
The most commons modes of entry are:
(1) Standalone
(2) Shelter provider
(3) Joint venture
(4) Contract manufacturing
(5) Operational Environments.
Each of the these business models has advantages and disadvantages in terms of startup and operating costs, risk and exposure and control.
Depending on your company's labor, logistical, and facility needs,the best location in Mexico can depend on a variety of factors.
Geography has a direct impact on logistics including supply-chain, transportation infrastructure, and local state regulations that enable the ease of manufacturing in Mexico.
Another factor to consider is the local labor factors that include skill demographics, wage structure, workforce stability, work ethic, union involvement, and population.
Training and skills development access and availability is also part of making a strategic decision to manufacture in Mexico.
Facility needs are also important when deciding on a manufacturing location, specifically when it comes to renting and buying industrial real estate that can cater to specific operational needs.
Learn more about understanding your site selection needs here.
Logistically, border cities offer lower freight costs when the ultimate destination of goods made in Mexico are located in the U.S. or Canada. But the interior of Mexico might have better proximity to some supply-chain networks and easier access to seaports. In regards to labor in the interior of Mexico, availability is usually higher with lower costs but logistics to suppliers and consumers in the U.S. might take more effort. The border has high turnover with high costs, but the proximity to U.S. customers and suppliers is unmatched.
The interior and central regions of Mexico maintain a lower turnover rate, and are just as skilled in manufacturing operations as their border counterparts. Recent federal investment in training and industry development in these regions has enabled more FDI, manufacturing activity, and overall GDP growth. Although these locations are further into the country, there is strong connected infrastructure to the rest of North America.
Learn more about understanding your site selection needs here.
Medical device, plastic injection molding, and electronics manufacturing are some of the top growing industrial sectors in Mexico.
The highest concentration of medical device manufacturing companies are in Tijuana and Jalisco. Medical device manufacturing in Mexico specializes in producing different products for various industry instruments and technologies.
Plastic injection molding and machinery is growing in locations that cater to other sectors. These states include, Queretaro, Jalisco, Mexico City, Nuevo Leon, and San Luis Potosi.
Electronics and EMS manufacturing is also an up and coming sector that is taking over Mexico, specifically Tijuana, Ciudad Juarez, and Guadalajara.
The automotive and aerospace industries are already established sectors that continue to grow. Automotive is specifically successful in Mexico's Bajio region and performs all types of production including parts, assembly, and aftermarket products. The Bajio region includes the Mexican states of Guanajuato, Queretaro, Aguascalientes, Jalisco, and San Luis Potosi.
The Aerospace industry primarily manufactures airplane engine components, turbines, and wiring harnesses. The states that support aerospace manufacturing are Sonora, Chihuahua, Baja California, Queretaro, and Nuevo Leon.
Permanent Establishment is described as a businesses that has a stable and ongoing presence of persistent revenue creation in a foreign country. If the company maintains any type of locally created revenue the host country can sometimes tax that revenue at a local rate.
There is different standardization that countries follow to implement PE status and tax companies as such. Although, many countries model their economic policies, treaties, and tax laws off of guidelines from the Organization For Economic Cooperation and Development (OECD).
A maquiladora, also known as a maquila, provides preferential tariff programs agreed on by the U.S. and Mexico. A maquiladora identifies as the legal entity for foreign manufacturer to produce and export goods out of Mexico. The Mexican government recognizes the benefits derived from foreign companies establishing manufacturing operations in the country and therefore extends certain tax and trade benefits to maquila operations. For example, manufacturing materials and equipment can enter into Mexico duty-free, while Mexican made products exported into the U.S. are at a lower tariff or free.
To be eligible to capitalize on tax and trade benefits, Mexican legal entities must satisfy a number of conditions to be considered a maquila operation.
- Find out where you need to be. Is it close to your suppliers, customers, industry hubs?
- Figure out the logistics. How timely, cost effective or easy is it to transport your products.
- Mexico is made up of states, each state has its own economic development committee that is committed to supporting local industry initiatives. Once you find your location, you can contact the state to see the various initiatives that can serve your industry. One place to start is with ProMexico, the national EDC with locations in each state.
- Contact Us! Tetakawi provides resources and support services for every step of doing business in Mexico from the decision making process to maintaining a successful operation.
Labor in Mexico
The direct labor minimum wage for manufacturing in Mexico comes out to around $1.90 USD/hour including benefits, based on a 18.5 exchange rate. China’s average is $3.60 USD/hour including benefits, but Mexico has a 48 hour work week compared to China's 40 hour work week. In this sense, labor costs in both countries amount to about $500 USD a month with Mexico adding a day of productivity.
After the minimum wage increase in 2017, average wages in Mexico for direct labor manufacturing came out to around $5.83 a day, including benefits. Overall, wages for direct labor in Mexico are often determined through annual negotiations between the employer and a labor union. Wages for indirect positions are driven by supply and demand.
Certain companies categorize direct labor by skill set required such as (1) assemblers and fabricators, (2) operators using certain type of machinery, (4) painters, (5) welders, (6) CNC machine operators, (7) CNC setup technicians, (8) CNC machinists, etc.
For people working as assemblers and fabricators, employer costs can range from $1.90 an hour at the time of hire, to $2.33 an hour after 1 year of employment, to $3.19 per hour after several years of being employed within that skill category.
Wages and employee benefits vary by region and can often change depending on the location.
Hourly employees as opposed to salaried employees are subject to overtime pay which can be double or triple time depending on certain conditions. Mexico’s regular work week is 48 hours (day shift), 45 hours (mixed shift), and 42 hours (night shift).
In 2017 Mexico's population amounted to 124 Million people and 64% of the population completed high school.
Also in 2017, an average of 54,204,266 people were economically active, and many were part of the manufacturing workforce. For example, 2,584,726 people worked in manufacturing during 2017, and almost 75% of them were low to medium-skilled employees.
It is suggested that companies meet with a union representative while preparing to do business in Mexico. In some scenarios, companies beginning operations may invite a union to represent their employees. Any company in Mexico with 20 or more employees can be unionized, and if you don't work with a trusted union from the get-go, you can sometimes come across harder negotiations.
The so called “white unions” in Mexico are known for a cooperative business relationship with employers. The “red unions” have a reputation for harder negotiating positions and work stoppages.
While unions tend to be far more cooperative than their American or European counterparts they can be expected to bargain hard for wage and benefit improvements. Overall, the goal is to find solutions that consider the health and success of the business.
Understand the considerations for working with labor unions in Mexico
Aside from the 6 legal holidays mandated by the government, companies also offer competitive vacation days and benefits to stay the employer of choice.
The standard legal employee benefits are paid time off, holidays, company savings program, Christmas bonus, and healthcare.
The standard benefits that keep a company competitive and maintain turnover are work transportation, free meals or meal vouchers, punctuality bonuses, and sometimes scholarships.
Although some benefits might add on to initial costs, if employees are happy and present at work they will save costs in the long run. Find out more about benefits in Mexico here!
The Mexican labor law was enacted in 1917 after the revolutionary war to help implement clean and safe working conditions. The law has been reformed twice in 1970, and again in 2012.
The current Labor Law pushes for a more sustainable living by enhancing work relationships, payroll, benefits, contracts, and social security. Learn more here.
They are! It is suggested that companies hire bilingual Mexican engineers and managers to communicate well with staff and the home office. This promotes the ability to run a more efficient operation based on similar cultural norms while carrying out company culture.
The government has implemented a number of initiatives, including adding certain curriculum to college coursework that will help groom the country's next generation of technical workers. There are even trade schools being constructed that focus on the skills that people will need to work in certain industries, such as manufacturing. Learn More here!
Training for basic manufacturing skills is available throughout Mexico because of federal reforms to the Labor Law. The availability of specific training depends on the industry influence of the region.
Depending on the size of the operation and the industry cluster of the site selected, Mexico's Labor Law reform in 2013 states that all companies with 50 employees or more are required to provide some type of training or provisional workforce skills to their employees.
The Labor Law change was mandated by Mexico’s Department of Labor and Social Welfare (STPS) in hope to maintain a competitive and highly skilled workforce. Learn More here!
Depending on your location in Mexico, labor retention can be difficult or manageable. Employees along the border tend to bounce around operations, leaving their job for better offers at another manufacturer. Companies manufacturing within the country, for example in the Bajio region and along the coasts, tend to have better overall retention, but still need to provide competitive benefits.
Like most places, retention is based on wages, benefits, and workplace environment. Standard retention strategies include transportation to and from work, food vouchers or free meals, punctuality and Christmas bonuses.
One other thing to note is that most employees come from different parts of Mexico, and holiday season retention is difficult as employees leave to be with family.
Yes!
Providing training in the U.S. to employees that will be paid, or on salary calls for a Temporary worker visa. They can be categorized under an H, L. O, P, Q visa and others. Employees can also enter the U.S. through a B-1 visa with a 1 - 6 moths initial stay period, and a total maximum stay up to 1 year. Find out more here.
In Canada employees present for training are considered business visitors specifically if they're going for through at a parent Canadian company or a subsidiary of a foreign company and going back to work outside of Canada. These employees also need an electronic Travel Authorization (ETA). You can find more here.
Expats working in Mexico need to show proof of employment when applying for the country's different types of visas.
For companies with origins in the U.K., Canada, the U.S., Japan, and countries in the Schengen region those employees or individuals can get an FMM or visitor's visa that is valid for up to 180 days without applying or going to a consulate. All other countries need to go to the closest Mexican consulate. This includes visitors and business travelers.
For employees staying longer than 6 months there is a temporary resident visa that is valid for one year and can be renewed every year in one year increments. If the employee plans on staying longer than 4 years it is suggested they get a permanent resident visa.
Those wishing to get a Permanent Resident Visa doesn't need to ask for extensions once it is granted. This is mainly sought after by retirees and those with family ties. In some cases, if the Permanent Resident Visa holder makes an investment in the country, they can be considered a Mexican national.
An Aguinaldo in Mexico is a Christmas Bonus mandated by law and provided to every employee in the company. This bonus is meant to help cover extra holiday expenses, and every employee position is entitled to the bonus.
Regulations and Policy in Mexico
USMCA is the modernization of NAFTA, or NAFTA 2.0. This new agreement is an upgrade from NAFTA and includes updated clauses that derive from the former TPP agreement.
The main changes that affect manufacturers in Mexico include:
- Automotive part origins
- Automotive labor
- The sunset clause
- Settling trade disputes
- Sourcing from non-trade countries
- Duty-free tariffs
North America's overall manufacturing industry has boomed since the inception of NAFTA, specifically for machines, engines, pumps, electronic equipment, and Vehicles. The growth in these specialty exports has instilled economic productivity for all three countries.
The partnership allows companies in North America to manufacture at low costs, with a labor force that understands the value of creating high-quality products. Because of the overall lower manufacturing costs, companies have more space to diversify their markets and attempt to explore newer products.
Overall, North America is one of the largest consumer markets in the world, and NAFTA has made the import and export of goods originating and flowing from these three countries more accessible with lower costs.
IMMEX provides an cost incentive for companies that manufacture and export goods from Mexico. The incentive allows a manufacturing company to carry out “temporary” importations of production parts, materials, and assets without having to pay the otherwise assessed value added tax - which is 16%. Manufacturing companies that are registered under IMMEX and import goods “temporarily” must export those goods out of Mexico within a certain time frame, “transfer” those goods to another IMMEX company within Mexico, or change the status of “temporarily” imported goods to a “definitive” status.
Enjoying the benefits as a registered IMMEX company requires certain record-keeping and inventory controls for trace-ability during regulatory audits. To be registered under the IMMEX program with Mexico's Department of Economy and to gain the program's incentive, the manufacturing company must be in the business of directly or indirectly producing goods that are subsequently exported.
Yes, Mexico’s international trade is based on a harmonized tariff system. Like the U.S. and Canada, in Mexico, a particular good is classified based on a harmonized tariff schedule, import duties, country of origin, and value.
The Mexican government has instituted a number of programs to help manufacturers reduce, and in most cases, eliminate import duties for goods entering Mexico. In addition to NAFTA, Mexico provides programs such as PROSEC and REGLA OCTAVA (translates to the eighth rule) which reduce duties on many industry specific commodities.
For companies manufacturing as a maquiladora, the 16% levied value added tax (VAT) does not count as an import duty. Mexico assesses VAT on all imports of raw materials and equipment effective January 1, 2015. However, an SAT Certification allows maquila operations to request an instant credit to this VAT at the time of import. SAT is the enforcement branch of Mexico’s treasury department. Companies that meet the certification requirements will not have to pay the VAT at the time of importing raw materials or equipment into Mexico. VAT is assessed and payable each time consumable items enter Mexico.
Mexico's environmental laws are similar to that of the U.S., but also go further in implementing provisional regulations. The General Ecological Law in Mexico, or LGEEPA, addresses a broad range of environmental matters including water, air and ground pollution, resource conservation, and environmental enforcement.
Three of the major industrial requirements cover air pollution, water pollution, and hazardous waste. Find out more here!
Regulations in Mexico cover a variety of operational functions including employment, import and export, the environment, occupational health and safety, and taxes. The laws that regulate these areas are different from those in other countries.
The Mexican government has made adhering to regulations easier by providing effective mechanisms and processes for manufacturing companies to access information, request authorizations and permits, and get needed assistance.
Mexico's industrial health and safety regulations implemented by the Mexican Labor Law is one of the most highly enforced regulations in the country. This is followed by environmental and trade regulations.
1. Department of Foreign Ministry: http://www.sre.gob.mx/en/
2. Department of Labor and Social Security: http://www.stps.gob.mx/bp/secciones/english/index.html
3. Department of the Treasury: http://www.shcp.gob.mx/Paginas/default.aspx#
4. Department of the Environment and Natural Resources: http://www.semarnat.gob.mx/
5. Department of Economy: http://www.economia.gob.mx/en
6. Department of State: http://www.gobernacion.gob.mx
Border vs Interior
Well over 56% of maquiladoras, companies who export most of their production, are located in one or more of the 6 Mexican states that are along the border with the U.S., these include, Baja California, Sonora, Chihuahua, Coahuila, Nuevo Leon, and Tamaulipas.
The other 44% are located throughout the other 26 states including Mexico City. In 2017 and 2018, over 65% of new maquiladoras in Mexico setup along a border state.
Mexico Manufacturing Taxes and Economy
Mexico's Value Added Tax is known as the IVA, Impuesto al Valor Agregado, and applies a 16% tax on imports, goods, and services and has been in place since 1980.
The rate of IVA tax is usually 16%, except for the border region, where the tax is 8%. Over the past decade, the IVA tax along the border has fluctuated from 11% to 0% to 16% to now 8%.
There is a variety of manufacturing goods and services that can be exempt from the tax, including:
- Used goods sold by non-taxpayers
- Currencies Financial instruments
- Gold at least 99% pure
- Machinery and equipment used on agriculture
- Certain goods between manufacturers subject to special export oriented regimes Insurance services
- Qualifying financial services
- Professional medical services
Many steps should be taken for IVA reimbursement, specifically saving receipts and registering as an entity with the Ministry of Public Finance and Credit, sometimes known as Hacienda. Monthly sales and purchases are submitted on a monthly basis and filed on the 17th, and returns are solely electronic. IVA credits can be rolled over when applicable.
Mexico's Corporate tax rate as of 2016 is 30%, foreign companies or enterprises established in Mexico are help under the same tax system as national enterprises, but are entitled to some exceptions. Capital gains from sales or fixed assess are considered normal income and taxed as such.
Start-Up expenditures will gradually be written off at the rate of 10% per year after adjustments. Companies might be held to act in employee profit sharing, which is a 10% tax, or a special excise tax on production and services.
The United States and Mexico have a double taxation treaty.
Tax deductions in Mexico are considered under losses, depreciation, consolidations and interest. Losses are carried up to 10 years without carry-back. Depreciation is deducted with the straight line method with rates fluctuating for different goods. For example, machinery has a 10% depreciation, furniture 10%, buildings 5%, cars and trucks 25%, and computers 30%.
A devaluation in the Mexican peso (MXN) with respect to the U.S. dollar (USD) buys more pesos for each dollar which effectively lowers costs incurred in Mexico. The peso to dollar ratio fluctuates but averages to about 18 Mexican pesos to 1 US dollar. This exchange rate provides U.S. companies manufacturing in Mexico with great purchasing power over materials, parts, and goods that provide value to manufacturing.
However, currency devaluation is typically followed by an increase in wages. Many times companies will buy pesos and use that money to pay employees and utilities to maintain a consistent value on the dollar.
Foreign Direct Investment in Mexico
In 2018, Mexico’s overall Foreign Direct Investment (FDI) was $17,842 Million USD, which was a 14% increase from 2017. Of the total investment, 43% went to the manufacturing industry which continues to be a stable source of the country’s GDP.
Many local governments have extra incentives in place to attract business, specifically companies that produce specialty products for the aerospace, automotive, and electronics industry.
Infrastructure and Utilities in Mexico
Yes. A growing number of lower tier suppliers are also emerging in Mexico which provide commodities such as metals, resins, and other raw materials.
However, the vast majority of raw materials and equipment used in maquila operations still originate outside of Mexico and are produced and shipped from the U.S., Canada, Europe, and the Far East.
Electricity in most areas of Mexico is monopolized by a government-run company called Comision Federal de Electricidad or CFE. Rates are established for residential, commercial and industrial users, and they vary by region, season and time of use.
On average, manufacturers can expect to pay CFE between $0.085 USD to $0.105 USD per kilowatt hour depending on the age/efficiency of the equipment drawing the power, the frequency of startup and shutdown and time of day when machines are in use.
In addition to receiving a monthly bill from CFE for the consumption of electrical power, manufacturers must pay CFE for electrical capacity which is approximately $100 USD per kVA. For example, if your operation in Mexico requires a 500 kVA transformer and you plan to run it at 80% of its capacity, then you will need to have 400kVA of service capacity connected to your transformer. CFE often provides some kVA service for free, i.e. 200 kVA and the additional 200 kVA (in this example) would need to be purchased by the manufacturer at 200 kVA x $100 USD = $20,000 USD.
Yes. Ground freight moves through highways as modern as one would see in the U.S. and Europe. The country also has an adequate infrastructure in place to move goods into and out of the country by air, waterways and rail car.
Several major U.S. carriers provide service across the U.S.-Mexico border and move goods through the country as a result of partnerships with Mexican carriers.
Companies seeking space for warehousing or distribution will not have a problem finding options in the major and second-tier cities in Mexico. Although class A space may be limited, class B and C space is readily available for use.
A scalable, low cost manufacturing environment in Mexico that integrates Class A industrial space, support services and a legal framework that collectively enhance productivity and efficiency through economies of scale. The Operational Environment delivers an effective, reliable and modular infrastructure for producing even the most complex goods.
Foreigners purchasing real estate and land in Mexico is possible, but maintaining and managing every aspect of the facility's infrastructure, utilities, taxes, and regulations can be difficult for first time owners.
Companies who own their own manufacturing facility in Mexico sometimes use third party resources to help with administrative management and some regulatory functions.
Fixed or Real Property taxes are levied rates for property ownership and are deductible when calculating corporation tax liability.
Environmental and Safety regulations are also to be taken into consideration when managing a facility in Mexico.
The most common areas to set up a business in Mexico are along the U.S.-Mexico border, and within the interior or central region of the country. Although there is a strong manufacturing presence along the border region, the labor market is saturated, and competition for talent is high. Some operations experience and average of 15% turnover a month because of the high demand for workers. But, the proximity to the large U.S. is an advantage for many operations that need to be close to their consumers.
The interior and central regions of Mexico maintain a lower turnover rate, and are just as skilled in manufacturing operations as their border counterparts. Recent federal investment in training and industry development in these regions has enabled more FDI, manufacturing activity, and overall GDP growth. Although these locations are further into the country, there is strong connected infrastructure to the rest of North America.
Mexico is experienced in transporting and exporting goods out of the country. In 2017, Mexico was the 9th largest exporter in the world with $418B USD worth of goods being exported. When companies work with a reliable logistics partner, the security of their goods is increased tenfold because of the many regulations and certifications needed to transport goods across the country and across border lines.
Mexico has also invested in road infrastructure and added security certifications for companies transporting goods. These implementations improve the quality and timeliness of distribution, along with the safety of the drivers and the goods.
There are also many toll roads put in place that enable a safe and easy access for goods to pass through. For example, there are 3 tolls from the Arizona border going to the coast of Mexico at Guaymas, Sonora.
Culture and Lifestyle in Mexico
Although most Mexican business people speak English it is important to learn Spanish if you will be conducting operations in the country, especially when first starting out. Translators and third party services can help ease the start up process and get companies oriented while they learn Spanish.
If someone from the company will be living in Mexico, learning Spanish, or some Spanish, is also good for their quality of life outside of the office.
For those who plan to travel back and forth, there's no real need to become fluent in Spanish, but understanding the cultural norms and phrases to help you get around can make a big difference.
Many expat employees in Mexico usually take advantage of the country's beautiful beaches and low cost travel accommodations. Many of the cities with a large manufacturing presence also offer high recreational activities along with traditional or cultural events.
Mexico was ranked 54 out of a 190 for ease of doing business, meaning much of the country is used to following regulations and understanding the laws and policies needed to maintain a functional operation.
Companies who work with trusted partners in their perspective industries run a lower risk of being caught in unwanted or illegal situations.
Sending employees to train or work in Mexico is just as safe as anywhere else. Some precautions to take would be to have employees understand cultural norms and learn certain phrases to get around town.
When sending employees to Mexico, the safety precautions to take are similar to sending an employee anywhere in the U.S., company policy and guidelines should cross borders and talent should be held to similar standards.
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