Episode 7: One-Time Start-Up Costs for Manufacturing in Mexico - Podcast Tetakawi

Mexican Start Up Fees: The Cost of Starting a Business in Mexico

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Episode 7: One-Time Start-Up Costs for Mexican Manufacturing Businesses

In this episode on doing business in Mexico, Ricardo Rascon welcomes back David McQueen to build on their previous conversations about manufacturing in Mexico. Today, they discuss the one-time start-up costs manufacturers and investors must take into account when expanding their business into Mexico. David explains that there are generally 5 types of non-recurring costs for new business operations to consider. These are legal and incorporation costs, leasehold improvements and facility expenses, regulatory fees and expenses, physical assets and the internal staffing and training costs required when opening a new international business

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The conversation begins with discussing legal and incorporation business costs. First and foremost, business owners need to know the types of entities you will require depending on the activities you will be engaging with in Mexico. Then, David highlights the two main types of IMMEX corporations for foreign countries. Generally, foreign entities can own as many Mexican businesses as they would like. Forming your company doesn’t have to be a great expense. You do, however, need to make sure that you have a competent Mexican accountant and legal assistant who have previous experience establishing foreign business entities in Mexico. Next, David unpacks the Mexican facility upgrades which organizations will likely want to tackle when opening new locations. While some industrial park landlords will not finance any building improvements, others will finance a limited number of property updates. It may, however, be in your interest to directly pay for certain items which you can take with you after your property lease ends. Other potential one-time business costs include utility connection fees, gas and water fees, security bonds and more. Regulatory fees include wastewater fees, approval of your health and safety plans and development of fire prevention plans and training. While physical asset costs will vary, signage is a universal item to consider with your property. Finally, David unpacks the costs associated with business start-up and training. He emphasizes the importance of the initial investment in recruiting, testing and interviewing candidates. When it comes to brand new businesses organizations, everybody top to bottom needs to be trained, largely in Spanish. In closing, he offers helpful guidelines for training strategies when starting a business in Mexico.


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Episode Transcript

Speaker 1: Welcome to Tetakawi's Manufacturing in Mexico Podcast, where we talk to internal and external experts to provide you with news, insights, and best practices about doing business in Mexico. Whether you're thinking about starting a business in Mexico or already there, this podcast will provide you with the information and advice you need to launch, operate, and thrive.

Ricardo Rascon: Hello, and welcome to another episode of Tetakawi's Manufacturing in Mexico Podcast. My name is Ricardo Rascon and I'm joined again today by David McQueen. How you doing today, David?

David McQueen: I'm great, Ricardo. Thank you very much.

Ricardo Rascon: I'm glad, thanks again for joining us. So to our listeners, if you've had the opportunity to listen to our last few podcasts in sequential order, you'll notice that we're slowly pulling back the layers to help you understand what it truly costs to operate in Mexico. We've touched on wages, real estate costs, utilities and logistics. And now today we're going to focus on one time business startup costs that you need to take into account when expanding into Mexico. So Dave, I know that you've led a couple of Mexican company expansions yourself and you've helped countless other companies develop their own entrance strategies for manufacturing in Mexico, can you tell us what kind of one-time startup costs and fees companies need to include in their budgets for expanding into Mexico?

Overview of The Business Costs We Will Address in This Episode

David McQueen: There are generally five types of non-recurring costs that a new business needs to think about, and they are, first of all, legal and incorporation costs, obviously you've got to set company formation up, and there's a cost associated with that. Then there are the leasehold improvements and the facility expenses that you incur in establishing a new facility. There are regulatory fees and expenses of course, that have to be paid and don't recur. There are your physical assets that you need to buy, and of course people are aware of this, but there are a number of points about physical assets and property that need to be considered. And then finally, there's the initial staffing and the training costs to think about.

Legal and Business Incorporation Fees

Ricardo Rascon: Great, I think this gives us a framework to kind of build on our conversation about business in Mexico. So starting with legal and incorporation costs, I'm assuming this is the first step that most companies would take as they're expanding into Mexico. Can you highlight some of the steps on what it entails to get legal compliance, Dave, in terms from a cost perspective?

David McQueen: Sure. Legal compliance isn't always the first step, and it may not be necessary as the first step for business owners, but let's talk about what you need to do. First of all, you need to know what type or types of legal entities you are going to require for your business operations, and these depend, to some degree, on the types of activities you're going to undertake or engage in when you're in Mexico because Mexico has different types of entities required for different types of activities. First of all, of course, most people are going to look at exporting to another country as a priority. Most companies are going to be exporters. And when you remember that in Mexico, shipping goods between Mexican facilities that are both exporters is considered by the Mexican government to be an export transaction, goods don't necessarily physically need to leave the country. That's going to take in a lot of people in terms of the business operations they're going to have in Mexico.

So if you're an exporter business, you're going to want to think about an IMMEX corporation, and IMMEX is the designation that refers to the government program that allows companies to avoid paying or to recover value added tax (VAT). So very important for exporting companies. There are several types of IMMEX corporations that you need to think through, but most of them apply to special situations or to Mexican entities setting up an IMMEX operation.

So for foreign businesses, there's really two main ones. There's the maquiladora [foreign language 00:04:05], which is the designation for standalone corporate entities that are established by a foreign corporation. And there's the maquiladora albergue, which refers to shelter type operations set up by a foreign corporation. So one of those two is probably going to be what a company's going to want for their IMMEX entity.

Now, many businesses in addition to exporting, may also want to issue Mexican invoices to end users in Mexico. If that's in your business plans, then on those transactions you do need to collect value added tax. So you may also need a trading corporation to process those types of transactions, and that can be added to either an IMMEX standalone or an IMMEX shelter entity.

Other things that you might want to think about if you're going to hold real estate or property and you want to hold that in a separate corporation, as you might do in some other countries like the United States, that's a possibility in Mexico. And so you might establish a real estate company for the purpose of buying real estate and holding your real estate. If you're going to engage in services, there are special requirements in Mexico that apply to services and you may want to set up a service company in order to provide services as opposed to manufacturing or other types of trade transactions. And there are some others you might want to consider, but you can see that you need to think through, first of all, what you're going to do and then that determines what types of entities are available to you and you need to select from amongst those entities.

Ricardo Rascon: Thanks for that explanation, Dave. And from our experience, we've seen some pretty simple legal structures, some complex ones as well, as the ones you were highlighting earlier in terms of having a real estate company, a trading company, an IMMEX and all these things. Are there any restrictions on how many companies a foreign corporation or individual can own?

David McQueen: Not generally, no. There are certain industries like energy or military goods where there are some restrictions, but generally speaking, foreigners and foreign entities can own as many Mexican businesses or Mexican legal entities as they would like. There are combinations also allowed, so you can have a shelter manufacturing unit and combine that with some standalone corporations. So there's a lot of flexibility.

Ricardo Rascon: Great. And earlier when I asked you if forming a company was typically the first step that a company needs to take when planning their expansion into Mexico, you said that that wasn't necessarily the case. Can you explain when that might not make sense?

David McQueen: Sure. There are certain things you can't do unless you have a legal corporation. You can't hire people in Mexico, you can't buy property in Mexico. Actually you can, but if you were going to hold that in a Mexican corporation, you'd have to establish that corporation first. And you can't manufacture goods in Mexico without establishing a legal business, but there's no barrier to investigating options, negotiating contracts, even signing contracts before you have your entities established. So there's many things you can do in advance of requiring a legal entity, and you could also form one entity, and not form the other ones at the same time. Maybe you want to buy property, so you create your real estate company and purchase your real estate, but maybe you're not ready to form a shelter entity or a standalone corporation for trading transactions, that kind of thing.

Ricardo Rascon: So say I'm a manufacturer and I know what I want to do and I've decided what my legal entity structure should be in the sequence in which I need to get them. How do I determine what it's going to cost to make sure that I'm set up the way I want to be?

David McQueen: Well, it doesn't need to be very expensive. We've seen a lot of businesses form for between five and $7,000 US, so it doesn't have to be expensive. If you've got a complex situation or specific requirements that make things a little more intricate, then maybe it's going to cost you more, but you want to make sure that you really need that before you spend more on legal compliance. What you do need to do is you need to make sure you have competent Mexican accounting services and legal assistance from lawyers, and you want to make sure those people have established corporations for foreign entities before and that they've got experience with the process in order to make it go in a timely manner and to keep those costs under control.

Ricardo Rascon: So that kind of gives a good explanation in terms of if I wanted to kind of form a standalone company, what if I wanted to work through a shelter service provider, what would it cost for me to set up that legal structure?

David McQueen: Well, nothing. One of the benefits of a shelter is that you don't need a corporate entity, you are actually using the corporate umbrella of the shelter company which is already established. So there's no incorporation cost associated with working with a shelter company.

Ricardo Rascon: And so how does that work from a timing perspective? The way I see it, there's two potentials here, one is working with the shelter and another is forming my own company. What does the timing look under both of those scenarios? What does it look like?

David McQueen: Oh, well, shelter registration can be very quick. You maybe need a week or two to exchange information, sign contracts, things like that once you've actually selected your shelter partner, but it's very quick because everything's in place already for starting a business. Creating and registering a corporate legal entity takes longer and it involves a number of steps. Now, first of all, you need to obtain approval to incorporate your company in Mexico. Then when you have that, then you need to complete the incorporation proceedings, and there are a number of steps there. Together, those two things usually take three to six weeks. IMMEX requires another two to four weeks to become registered as a maquiladora, and it has to happen after that first step. And there are a number of registrations required for local, federal, state agencies, and those vary from state to state, but those registrations have to happen as well. The whole process typically takes somewhere from three to six months to complete.

The other thing you need to know is that new IMMEX corporations also need to become certified before they can avoid paying value added tax. Now, we mentioned that IMMEX allows you to avoid paying value added tax (VAT) or to recover value added tax. When you first become an IMMEX corporation, you can recover value added tax that you paid, but you must pay it in advance. The certification process requires that you operate for a certain period of time and reach certain milestones. If you start a standalone corporation, IMMEX corporation, there will be a period of time in which you can recover value added taxes you've paid, but you can't avoid paying it upfront, so there's a cash flow implication. This does not happen with the shelter, the shelter's already certified. So whenever the opportunity exists to not pay value-added tax, you can take advantage of that and increase your profit because you are paying less taxes.

Ricardo Rascon: So from my perspective then, if I'm a company and I don't have time, getting an IMMEX certification, the [inaudible 00:11:09] certification can take a significant amount of time, is it possible to first start operating under the auspice of a shelter company and then transitioning to my own entity once I register and have those certifications in place?

David McQueen: Yeah, definitely. There's no barrier, legal or otherwise, to transitioning from a shelter operation into a standalone corporation. And in fact, that's the path many companies follow. As you mentioned, it's such much easier and quicker to start with a shelter corporation, but then down the road when they have experience and everything's in place and they have critical mass, then maybe it makes sense for them to go on their own as a standalone corporation. And most shelter companies will assist in that transition, they'll work out a transition plan and help you make the transition to becoming your own legal entity.

Business Facility and Property Fees

Ricardo Rascon: So we've kind of talked about different entities, steps that you need to take, length of time and cost. Now, kind of going back to the five items that you said companies need to consider when examining startup costs, what can you tell us about leasehold improvements in facilities expenses? What should companies expect to see when starting up in Mexico?

David McQueen: Well, the first thing to remember is that you're probably going to be looking at negotiating a lease or purchasing a bare building. Even in the case where you have a built to suit, the developer's going to start off with a bare building specification. So there's a whole bunch of things you need to think about when opening your business in Mexico. Typical standard bare building is going to have limited factory lighting. It's probably only going to be warehouse levels. It may not be the fixtures that you want. So there's an upgrade required there. Typically, the installed electrical transforming capacity is going to be minimal. It might only be enough to turn on the lights and power a few outlets, so you're going to need to upgrade that. It's common for there to be a very limited amount or sometimes even no factory ventilation, so that's another issue that needs to be addressed.

Other things, dock doors and dock levelers or even the number of docks might be limited and the levelers and doors will probably be manually operated. So that may be okay with you, but it may be something you need to correct before starting operations. Floors are frequently only six inch slab on grade with wire mesh. So if you need a bigger floor loading, that's going to need to be addressed. In Mexico, minimum fire protection only requires hose drops and extinguishers, not sprinklers. So for any company that requires sprinklers, that's going to be an additional cost and investment. Office space, you're typically going to have three to 5% of the total area included as part of a bare building or a built to suit contract. And that space usually is included with air conditioning, some area lighting and basic finishes like tile floors and drywall and interior walls. But any increase in space or alterations to those basic specifications are going to be extra to the standard building.

You also have to consider that standing construction is not normally going to support overhead cranes or other types of foundations without reinforcement. So that might be something that needs to be addressed. And then if you move outside the building, your exterior fencing, security lighting, property cameras, often not part of the package. That depends if you're in a park where that's included or not. Parking lots normally are going to be paved, and there's usually going to be some basic landscaping on the exterior of the building. But everything else, including any process specific changes are going to be in addition to the basic rent or purchase price and you're going to understand what those are and then negotiate or pay for them.

Ricardo Rascon: Great. And is there a lot of variation between different landlords in Mexico and what's included in a standard building?

David McQueen: Oh, definitely. Tetakawi Parks, for example, provide a standard building that has upgraded lighting, factory ventilation, added transformer capacity, because we know all our clients are manufacturers and we know they're going to need those amenities when moving your company to Mexico. There are some third-party park operators and some multi-tenant building owners who also do that because they're aiming specifically at a manufacturing market, so they're including a lot of amenities and a lot of leasehold improvements to the buildings. So there can be very wide variations in a lot of things, what the standard lighting is, what the basic finishes are, we mentioned transformer capacity, security features, all sorts of things. You need to very carefully investigate what's provided and what you're going to require for your needs that's going to be extra to that.

Ricardo Rascon: So as I start to kind of look at the standard building and then I start to kind up fit it to meet my specifications, can I expect to be able to negotiate with the landlord to amortize these improvements into my lease if they're not already included?

David McQueen: Well, sometimes. There's quite a variation there. Some landlords will not finance any leasehold improvements, others are only going to finance a very limited number of items, so there's considerable variation there. But it may also be in your interest to directly pay for certain items, and you need to think about that. Transformers, for example, if you pay for extra transformer capacity, then when you leave that building, or if you leave that building, that transformer's yours, you can take it with you. But if the landlord advertises it into the rent, well then it's his transformer and it doesn't go with you if you move your firm to another country or facility.

And by the way, while we're on the subject of transformers, there is another cost upgrading your electrical capacity. CFE, the Mexican federal utility, power utility, charges a one-time demand, it's approximately a hundred dollars US per KVA for demand capacity above 200 KVA. Many manufacturers are going to need more than 200 KVAs, and so you're going to have a one-time expense there to get that additional capacity. And if anyone's thinking they can avoid that, CFE monitors it very closely and they will shut down companies that exceed their paid demand capacity. So you don't want to be in that situation.

Ricardo Rascon: So I think I have a good understanding now of sitting down with my landlord, negotiating improvements, deciding what's added or not added to the rent. Now looking at other building related expenses, is there anything else that I need a budget for at startup?

David McQueen: Yeah, potentially you might have utility connection fees. These can be in some cases minor, in other cases they can be significant. In the worst case, you may need to bring additional capacity in, so you may need to pay for transmission lines or main piping of some kind. So it's really important to nail down with your developer, with your real estate provider, what connections are there, what the capacity is on those connections, and what you'll be responsible to pay for. It may just simply be a street connection, it may be nothing if it's already in place or it could be significant if you've got to put in transformers and lines or mains piping.

Ricardo Rascon: Okay. And do the utility service providers have other upfront charges that need to be taken into account?

David McQueen: Yes, they do. We've already talked about the electrical demand capacity, the fee that's charged there, but also your electrical installation requires legal approval. It must be approved by a Mexican electrical engineer who has to review your plans and your specifications and than issue an official approval of that. It typically costs somewhere between say 2,500 US and 3,000 US for a 35,000 square foot building, that's typically what we see. Bigger building, more electrical equipment, it will be more, smaller, maybe less. CFE certifies that installation and that costs you another thousand dollars or so for a 35,000 square foot building, again, more or less, depending on your requirements. CFE is also going to require a security bond, and that's based on your expected demand. It's typically about a dollar US per KVA. And then once you start your business operations, you need another certification from the power authorities and that costs about $2,500 per transformer connection.

Ricardo Rascon: So I think with electricity, that kind of sums it up. But what about gas and water, Dave?

David McQueen: Well, once again, there may be a connection fee, and we talked about that earlier. There are, for gas utilities, there are demand charges as well to have capacity available and they're going to require a security bond from you. There are no certification or demand charges required for your water, but you do want to make sure the capacity's available to meet your firm needs.

Ricardo Rascon: Okay, so I have my electricity, I have my gas, I have my water, what about data? Are there any upfront costs there?

David McQueen: Well, telecom and data providers usually do ask for a security bond, but because it's a competitive environment there, you have a choice of providers, usually that are typically willing to negotiate on the amount of that bond. It may even eliminate it.

Cost of Registry and Regulatory Compliance

Ricardo Rascon: So I think that sums up building and connecting utilities. So as a manufacturer, looking at the costs that you kind of highlighted earlier that they need to consider, the next on the list is regulatory fees. What regulatory costs should manufacturers consider at startup in Mexico?

David McQueen: Well, the first thing is that every manufacturer needs to submit and have approved an environmental survey. This needs to be done by a third-party environmental consultant who will list your waste streams and what your control strategies that you are proposing are going to be. The government then either approves that plan or they request amendments, and then you arrive in agreement of how you're going to control your waste streams. This typically costs somewhere between three and $5,000 US. If you've got a complex waste stream with a lot of waste and a lot of complicated treatments, it may cost more, but that's a ballpark, 3,500 to 5,000 US. You also need to have your health and safety plan approved, and you need to also have a fire prevention plan in place along with a training plan that supports it, and that too needs to be approved.

There are a number of permits that are required by local, state, and municipal authorities. They vary a bit from state to state and municipality to municipality, but they include things like sewer discharge permits, hazardous discharge permits, and various operating licenses. With both of those things and the approval of your health and safety plan and your fire plan, the cost of getting the approvals is not significant, but you do need to actually go through the process to register and that's where you need to spend time and you may have some money associated with going through the process.

So excluding the environmental study, I'd say a budget of 10,000 US for additional regulatory permits should be adequate for most companies. It's a good idea to review your company's specific requirements with somebody who's knowledgeable ahead of time just to make sure you haven't got something that's going to cost you considerably more or be more complicated. And that's something, by the way, that shelter companies typically make sure you're compliant on, typically part of their standard service. But for a standalone company, you do that yourself and you do want to make sure that it's done carefully, not even so much for the fact that you have to make sure you've paid all your bills and so on, but you don't want to start up and then find your shutdown because you're missing some critical permit.

Ricardo Rascon: Great. And Dave, from your experience, do you find environmental regulations in Mexico to be more stringent, less stringent than maybe the US, Canada, Europe, or about the same?

David McQueen: No, I don't. Typically they're modeled very much on the same rules as the United States as OSHA requirements and EPA requirements. So a lot of it's very familiar. The one benefit is that Mexico does allow some flexibility in proposing your control and treatment strategies rather than mandating them. So sometimes it's actually much easier in Mexico because you can make the treatment strategy specific to your business operation, where elsewhere you might have to do it in some mandated fashion. But they're very similar, whatever people are doing in the United States and Canada is going to be fine in Mexico.

Cost of Physical Assets

Ricardo Rascon: Perfect, thanks for that explanation there. So moving over from these regulatory costs, what about physical assets? Obviously it's going to vary from company to company, but I'm sure there's a few kind of universal items that you think that a should consider in terms of physical assets they would have to purchase when starting a business.

David McQueen: Yeah, I think are. I mean, most companies of course are going to be well aware that they need some physical assets, that's not going to escape them. But there are some peculiar and specific things that it's good to be reminded about. We've already talked about transformer capacity as being one of those things. Another item that often gets overlooked is signage and you need to think with respect to signage, obviously there's going to be very little in the building when you start, but it's not just the sign on the building outside, there's a whole bunch of regulatory signage you're going to need to stay in legal compliance in addition to whatever process signs you need. And you're going to need to decide with all of that signage, how much of it's going to be bilingual. Your basic requirement is going to be to post the signage in Spanish, but you may also want other languages on there to facilitate people from your home office when they're visiting or to make it easier for guests, that sort of thing. So signage is often a bigger task than people expect.

Ricardo Rascon: Great. And aside from these things, are there any other kind of types of things that you see sometimes companies forget to [inaudible 00:25:05]?

David McQueen: Yeah, a lot of companies will miss some of their furniture and fittings. And when you think about it's not surprising because you're going into a facility where you need everything, there aren't even any waste baskets yet. So secondary things like maybe a cot for the first aid room or microwaves for the lunchroom, they're easy to miss. And if they don't become obvious until when you need them, then that can be a bit of a problem and interfere with your corporate launch. You may also need to install an explosion-proof cabinet or some other type of containment for hazardous materials, that's something to remember. If you're providing meals, then you need a cooking facility as well as a cafeteria or a lunch area that you would need anyway. And if you have a picnic area or what is typically called a palapa in Mexico, outside your building, you need tables for that area as well. So there's a lot of little things like that that can easily escape your notice because you're going in with absolutely nothing.

Ricardo Rascon: Great. And the cost for a lot of these things, Dave, furniture for instance, is it going to be pretty comparable to costs in the US, Canada?

David McQueen: Yeah. And not only that, you have the facility bringing in items from Canada or the US and importing them into Mexico to use in your facility. So if you have surplus material of any kind, furniture, whatever, you can use that and you can ship it to Mexico and bring it in duty free and using it in your facility. You can also purchase in Canada or the US and have the stuff imported into Mexico and not pay value added tax on it because you're using it in your facility, that kind of thing. So a lot of opportunity to keep your costs in line with what they would be, and in fact, even to lower your costs if you happen to have some surplus in your current facility.

Cost of Employee Training

Ricardo Rascon: Great, that's good to know. So the last cost that you mentioned at the very beginning of the podcast was staffing and training. What are some of the startup costs associated with employee training, Dave?

David McQueen: Well, of course everyone's aware that this cost is going to be incurred. They know they don't have anybody yet, so you're going to need to hire them and going to need to train them. But I think it's worth emphasizing how significant that initial staffing exercise is, and some of the things you need to take into consideration when you're doing it. First of all, the initial investment in recruiting, testing, qualifying, interviewing employee candidates and so on, is going to be much higher than your ongoing operating level of activity. It's going to require more people, more resources than you would require on an ongoing basis in order to do it in a short enough time. You're also going to face the early stages of your business operation, extra churn in those people, more turnover. So for a period of time that part of your organization needs to operate at a much higher level than they will in an ongoing operation and that implies resources as well as time to do that.

Now, shelters typically include this as part of their service, so the shelter will take care of that for you. But for a standalone company, you need to staff that yourself and you need to plan out that part of the process or you're going to need to contract it out to somebody who has the resources. The next thing to remember is that everyone needs to be trained. There's no native knowledge because that facility didn't exist before. So absolutely everybody, top to bottom in that organization, needs training to understand what your company's about and of course to understand what the job is that they're expected to do. That training needs to happen for the most part in Spanish, even your senior people who do speak English will benefit from Spanish language training, but much of your organization is not going to speak English and they need to be trained in Spanish and have Spanish language training materials.

And another thing we recognize is that you do a lot of documentation for your business in Mexico. The better documented your company is, the better your training is documented, the more sustainable the whole thing will be. So it's a task of not only conveying that knowledge to the people you hire, but are providing you the ongoing supporting materials to make sure they have something to refer to that they remember that they can pass it on to future hirees and keep that learning curve as low as possible. I'd say preparing and budgeting for the employee training process and the learning curve is one of the most important things a company can do. It gets you up running faster, it makes for sustainable performance, and it allows you to operate your company as effectively as possible at the earliest possible point in the process.

Ricardo Rascon: I agree, Dave. I think when we look at the companies that we've worked with and the ones that are ready to train and prepared and well documented upfront, they tend to do much better than those who don't. Even after, you look into the future a few years into time, the ones that got started earlier, they're hitting those economies of learning and really creating more of a sustainable competitive advantage in Mexico. So I think it's super important that companies be very proactive with their training approach versus kind of reactive and a little more passive when launching their company in Mexico.

David McQueen: Yeah, I agree. Oh, and as an aside, by the way, training is one area where the government does provide some funding programs, so it's worthwhile checking into what's available for you in your industry because there may be some assistance to offset training costs.

Ricardo Rascon: And where does the training typically take place, Dave? I mean, say I have a very complex product that I'm looking to manufacture, how does it work from a geographical perspective? I mean, do I bring people to my factory in the US, Canada, Europe, to learn it? Or do I send someone from where this product is currently being manufactured to Mexico to teach the employees? What's the best approach? How does it typically work? What have you seen?

David McQueen: Well, what we typically recommend and what we've found to be the most successful, consider having senior, at least the senior people or senior person and perhaps extending to engineering groups, have them go to your home office to train. That's a good practice. It allows them to absorb typically the culture of the organization more quickly. It allows them to study how the organization works and allows them to interact with the senior people they're going to be interacting with on a regular basis. So it's not uncommon for people to say, have the general manager that they're going to have run their operation, spend four to eight weeks at the company's head office and do the training of that individual substantially in that situation. And as I say, you may add some other more senior people to that.

The reverse is true, typically, with the unskilled and the skilled production workforce, we find that's more successful to treat them as a group and train them in situ, in the plant. It tends to be much more difficult to train them in your home office for one thing, the language gap. Secondly, the fact that they're not doing what they're normally going to be doing in the location they're normally doing it. That's what we typically recommend for you. For the actual workforce on the floor, a greater success is usually achieved by training in situ, in the facility doing the actual task. And then for the senior management group, it's usually beneficial to spend at least some time at the home office.

Now the other thing that's helpful is to have people who can spend at least a fairly extended period of time after the operation is up and running in the facility itself providing some liaison. So that might be, for example, one of your engineers from your home office, or perhaps an experienced production manager who's willing to spend some time in Mexico, perhaps a month or two, and maybe that's intermittent or maybe it's continuous, very closely working with the plant to be able to answer those unusual questions that come up, "We didn't train on this, and here it is." "Oh, well that's that." The things that we all know because we're there all the time. We found that helps as well.

Ricardo Rascon: Great. Thanks for providing that insight, Dave. So I think that kind of summarizes our conversation about starting a business in Mexico to an extent. We talked about setting up a legal entity, what it costs, making sure our building meets our specifications, making sure that we're compliant from a regulatory and legal perspective. We talked about physical assets that we need to manufacture our products, and then we talked about hiring the initial workforce and training them. Is there any other advice that you would give companies at this point in time once they've kind of identified their launch strategy?

David McQueen: Well, I guess I would say we've kind of covered the landscape here and given people an idea of what they're looking at, but there's a lot of variables when moving a company to Mexico, and we've mentioned many of them, and so every company's situation's going to be a little different. And because a lot of these tasks or costs are on the critical path, I think the best advice I can give is to reach out to at least some experts who can help you determine what you are going to need to do, what your specific budget needs to be, and maybe more importantly, when you need to do certain things in that process in order to arrive at your launch period or even beyond with everything in place that you need to have in place. Compared to other regions of the world, Mexico's a relatively inexpensive and open place to launch and operation, but when you're starting a new facility, there are a lot of boxes to tick and getting some help from experts is I think a really wise thing to do.

Ricardo Rascon: Yeah, thanks Dave. And thank you to all of our listeners. I think from my perspective, the big takeaway here is a lot of companies are very focused on their ongoing expenses into Mexico, and they forget to take into account these startup costs that they've mentioned. So learn from the mistakes of others and talk to experts and get the information that you need to make sure your project finishes on time and on budget. So thank you all again for listening. If you haven't already listened to the last three episodes, I encourage you to do so because it'll kind of give you a more complete understanding of the full gamut of costs associated with manufacturing in Mexico. If you've already listened to these episodes and you're ready to learn more about manufacturing in Mexico, stay tuned for our next episode where we'll talk about options for companies who may not currently own their own manufacturing, but are looking to expand into Mexico and take back control of that part of the value chain. So thank you all again, and I hope you have a great day.

Speaker 1: We appreciate you joining us for this session of the Manufacturing in Mexico podcast. For more information and resources about how to succeed in Mexico, be sure to visit our website, tetakawi.com.

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