Join the manufacturing

By Xavier Hurtado

Mexico’s Manufacturing Facilitator

facilitator@AmericanIndustriesGroup.com

www.SupplyChainInMexico.com

Supply Chain in Mexico

About American Industries Group

American Industries Group is a

private Mexican company that has

helped over 200 global companies

(OEMs and suppliers) to

successfully establish and run

manufacturing operations

throughout Mexico since 1976

through Site Selection,

Administrative “Shelter” services

and Industrial Real Estate.

Our Locations & Score Card

Shelter & Start-up Services Real Estate

• 50 Customers.• Over 8,500 Customer’s headcount• Over 30,000 trouble-free import

and export transactions per year.

• We built a 12 M Sq. Ft. Portfolio.• Full Mexican Market Coverage• 9 Industrial Parks• 90 Buildings• 89 Customers

What we’ll cover today:

• 10 Reasons to Manufacture in Mexico as part of the global supply chain

• Location of manufacturing industrial clusters in Mexico: finding your

customers

• 5 Steps to do Site Selection in Mexico

• 5 ways to start up your manufacturing supply chain operations in Mexico

• 1 Step to get a Free Cost Model simulation for your supplier operation in

Mexico

10 REASONS TO MANUFACTURE IN MEXICO AS PART

OF THE GLOBAL SUPPLY CHAIN

Leveraging Mexico’s advantages for your profitability

10 Reasons to Manufacture in Mexico

as part of the global supply chain

1. Immediate access to the manufacturing industry in

Mexico and the US market.

2. Immediate re-manufacturing turnaround.

3. Skilled labor: up to 80% in savings with manufacturing,

assembly, engineering & Design capabilities (Catia 5)

4. Technical training support: Schools, R&D and training

centers.

5. Quality culture: ISO 9000, AS 9000, NADCAP.

6. Solid Manufacturing Clusters & Supply Chains: more than

3,000 foreign companies doing business in Mexico.

7. Tariffs savings: free Trade Agreements with 44 countries

8. Legal certainty for Intellectual Property

9. Tax incentives: No VAT and NO Income Tax under the

Shelter Programs for the first 4 years of operations.

10.Developed “Soft-landing” culture to help manufacturers

start up operations in Mexico in a fast-track, risk-free

shelter programs.

Bombardier Success Story

• Bombardier opened its new plant

in Querétaro Aerospace Park, with

an investment of 255.9 million

USD. This project will generate

approximately 1,105 direct jobs.

• The Learjet 85 is a project

surrounded by technological

innovation, the use of new

compound materials for the

production of structures such as

the fuselage, wings, control

surfaces, among other pieces, will

facilitate the creation of a

completely different airplane from

the current Learjet models.

The production of the first

Learjet 85 prototype is an

achievement for the Mexican

aerospace sector.

Myth: Everything in Mexico will

be inexpensive

Facts:

• Labor will be very inexpensive –

up to 80% in savings compared to

certain locations in North

America.

• Utilities, logistics, real estate

leasing and utilities will be about

the same costs as in the US.

Myth: There is low quality in the

labor force in Mexico

Facts:

• The labor force in Mexico is trained to

meet international quality standards

at technical training centers or at

their own academic institutions.

• Manufacturing plants have gotten their

certifications in ISO 9000, NADCAP, AS

9000 and other certifications on their

first attempt.

• There are some plants with Engineers

in process of getting manufacturing

patents of processes that they

optimized.

Aerospace manufacturing

quality in Mexico

Mexico is one of the few countries

that has entered into a bilateral

agreement for the mutual

recognition of aeronautical

certification - BASA (Bilateral

Aviation Safety Agreement) with

the U.S. Federal Aviation

Administration (FAA), while

companies operating in Mexico have

certified their procedures in keeping

with industry standards, such as ISO

– 9001, AS 9100, and NADCAP

(National Aerospace and Defense

Contractors Accreditation Program).

Mexico offers you the Available,

Skilled and Affordable Talent you

need for your Aerospace

Manufacturing operation

Myth: Security in Mexico is a

threat to manufacturers

Facts:

• Manufacturers have not

been threatened since they

do not handle cash in their

day-to-day operations.

• Manufacturers already

established in Mexico have

not left the country, but

they have expanded or plan

to expand their operations

in Mexico.

LOCATION OF MANUFACTURING INDUSTRIAL CLUSTERS

IN MEXICO: FINDING YOUR CUSTOMERS

Where are your current or potential customers in Mexico?

Mexico reported 232

aerospace companies that

employed more than

30,000 workers in 2010,

and primarily serve the US,

Canadian, German and

French markets

Source: Aerostrategy

Mexico – Global leader in aerospace

manufacturing investment attraction

Aerospace Industry in Mexico

Aerospace Clusters and

Supply Chain Integration

Beechcraft

Beechcraft operates 3 plants in the state

of Chihuahua that are focused on

medium & major aircraft subassemblies,

fuselage subassemblies, sheet metal

forming & cutting, extrusion machining,

hidroforming, heat treatment, water

& glicol and wire harnessing.

This is a success story in Mexico with

over 460,000 sq ft of industrial floor and

over 900 employees that has been

integrating its supply chain in the region

with different key manufacturers and

service providers, including special

processes.

Mexico took the 8th place among the top 40 Vehicle producers on a global level!

International Organization of Motor Vehicle Manufacturers (OICA)

Mexico’s Light Vehicles Exports

Mexico is the #1 Autopart supplier for the US

Automotive Industry

Numbers & Trends

Automotive OEMs in Mexico

Automotive Clusters and

Supply Chain Integration

Veyance – Success story

Veyance has 2 manufacturing plants in

Chihuahua, Mexico, serving the

international heavy truck industry.

They have a complex process that has

been certified by ISO9000 from the very

first attempt in all their plants.

They human resources team has always

been skilled and stable: no strikes in more

than 16 years.

They have successfully integrated their

local supply base for tooling and required

services.

Medical Devices Industry in Mexico

Other Industries that have

grown in Mexico:

From OEMs and assembly operators to Tiers 3

• Appliances

• Engineering Design

• Electronic

• Food

• Heavy industry

• Metal Mechanical

• Multimedia

• Petrochemical & plastics

• Pharmaceutical

• Software

• Textile

Mexico is the most cost effective

location for US companies as far as

labor and freight2011 US Manufacturing-Outsourcing Cost Index

5 STEPS TO DO SITE SELECTION IN MEXICO

Elements to consider to find the most cost-effective location

Site Selection Process

Selected Site

Due Dilligence

Specific Site Selcetion

Site Rough Cut Cost Analylsis Evaluation Matrix Final Site Selection

Regional Site Selection

Cities Rough Cut Cost Analysis Evaluation Matrix Final City Selection

Understanding the Project

Project Scope Company Objective Corporate Criteria

Understanding the Project

• Project Scope: What?– Product, Facility Size, Volumes, Equipment, Headcount &

Skills, Utilities & Consumption, Raw Material(s), Supply Base, Customer(s)...

• Company Objective: Why Mexico? – Cost reduction, Proximity to Customer(s), Logistics,

Suppliers....

• Corporate Criteria– Time Frame

– Buy or Lease

– Existing or BTS Facility

– Project Confidentiality / Company Exposure

– City Profile • Border, interior, big, small.

– Expat Quality of life

– Outside or Inside Industrial Park

– Curb Appeal

“Information IS NOT

Knowledge”- Albert Einstein

Key Factors to consider for Regional

& Specific Site Selection:

Business Environment

Labor

Demographics

Academic Infrastructure

Quality of Life

Political Environment

Geography & Climate

Accessibility

Supply Base

Infrastructure

Business Environment

• Labor

• Demographics

• Academic Infrastructure

• Quality of Life

• Political Environment

• Geography & Climate

• Accessibility

• Supply Base

• Infrastructure

• Turnover Rate

• Absenteeism

• Labor Environment

• Unemployment Rate*

• Labor Availability

• Labor Culture / Vocation

• Union Presence

• Established Companies & Competitors

Key Factors to consider for Regional

& Specific Site Selection:

• Business Environment

Labor

• Demographics

• Academic Infrastructure

• Quality of Life

• Political Environment

• Geography & Climate

• Accessibility

• Supply Base

• Infrastructure

• Availability

• Skills

• Fully Loaded Cost

Key Factors to consider for Regional

& Specific Site Selection:

• Business Environment

• Labor

Demographics

• Academic Infrastructure

• Quality of Life

• Political Environment

• Geography & Climate

• Accessibility

• Supply Base

• Infrastructure

• Population

• Total

• Economically Active

• Average Age

• People Entering the Workforce

Key Factors to consider for Regional

& Specific Site Selection:

• Business Environment

• Labor

• Demographics

Academic Infrastructure

• Quality of Life

• Political Environment

• Geography & Climate

• Accessibility

• Supply Base

• Infrastructure

• Universities

• Community Colleges

• Technical Schools

• Training Centers

• Research Centers

Key Factors to consider for Regional &

Specific Site Selection:

• Business Environment

• Labor

• Demographics

• Academic Infrastructure

Quality of Life

• Political Environment

• Geography & Climate

• Accessibility

• Supply Base

• Infrastructure

• Residential Areas

• Country Clubs

• Lodging

• Restaurants

• Hospitals

• Shopping Malls

• Convention Centers

• Cultural / Sport Activities

• Financial Services

• Bilingual Schools & Universities

• Expat Community

Key Factors to consider for Regional &

Specific Site Selection:

• Business Environment

• Labor

• Demographics

• Academic Infrastructure

• Quality of Life

Political Environment

• Geography & Climate

• Accessibility

• Supply Base

• Infrastructure

• Attitude towards business

• Incentives

• Political party in power

Key Factors to consider for Regional &

Specific Site Selection:

• Business Environment

• Labor

• Demographics

• Academic Infrastructure

• Quality of Life

• Political Environment

Geography & Climate

• Accessibility

• Supply Base

• Infrastructure

• Topography

• Temperature

• Humidity

• Prevailing Winds

• Rainfall

• Elevation

Key Factors to consider for Regional &

Specific Site Selection:

• Business Environment

• Labor

• Demographics

• Academic Infrastructure

• Quality of Life

• Political Environment

• Geography & Climate

Accessibility

• Supply Base

• Infrastructure

• Airports • Commercial / Cargo

• Domestic / international flight’s frequency

• Main roads connections

• Railroad connections

• Distance to other cities

• Distance to the port of entry

• Parcel services

• Freight services

• Freight costs• Air

• Land

• Rail

• Sea

Key Factors to consider for Regional

& Specific Site Selection:

• Business Environment

• Labor

• Demographics

• Academic Infrastructure

• Quality of Life

• Political Environment

• Geography & Climate

• Accessibility

Supply Base

• Infrastructure

• Services• Maintenance

• Special processes• Heat treatment

• CNC Machining

• Chemical

• Tool & Die Casting

• Injection Molding

• NDT

• Other

• Metrology

• Laboratory

• Raw Materials.

Key Factors to consider for Regional

& Specific Site Selection:

• Business Environment

• Labor

• Demographics

• Academic Infrastructure

• Quality of Life

• Political Environment

• Geography & Climate

• Accessibility

• Supply Base

Infrastructure

• Industrial Parks• Location

• Available Buildings

• Available Land

• Building Lease Rate

• Land Prices

• Rail Spur

• Utilities• Water

• Potable

• Treated

• Sewage

• Electricity• Tension (Low, High, Mid)

• Natural Gas

• Telecommunications• Copper, Fiber, Wireless

Key Factors to consider for Regional

& Specific Site Selection:

Cost Analysis

For both the Regional & Specific Site Analysis, operating

cost scenarios must be determined by considering the

following:

+ Labor

+ Process Utilities

+ Freight, Customs & Logistics

+ Building (Lease Rate, Triple Net, Utilities, CAM Fees)

+ Administrative

= Monthly Operating Cost & Fully Burdened Cost/hr

Evaluation Matrix

City / Site / Building

Option A Option B Option C

Key Factors

Company defines priorities & weights of the

factors to be considered

Due Diligence

Zoning

Ownership

Utilities FeasibilityWater

Sewage

Electricity

Natural Gas

Permits & Registrations

Easements

Site Studies Soil Mechanics

Topographic

Environmental Studies Phase One

Phase Two

After selecting a site, a due diligence process is

required:

You can by-pass this process when you lease

your facility with American Industries Group.

Local Knowledge is Key to :

Obtain up-to-date & detailed information

Clearly differentiate pros and cons of the available

options

Avoid unnecessary problems & costly mistakes before

and after the operation.

5 Business models to start

manufacturing operations in Mexico

Different ways to leverage Mexico’s advantages for your operations

5 Business models

• Finding a Joint

Venture Partner

• Acquiring an existing

operation

• Starting up with a

Stand Alone

operation

• Contract

Manufacturing

• Starting up with a

Shelter Program

5 Business models

Finding a Joint

Venture Partner

• Acquiring an existing

operation

• Starting up with a

Stand Alone

operation

• Contract

Manufacturing

• Starting up with a

Shelter Program

– They might be experts to do business in Mexico

– They might speed up the start up process due

to local networking

– They might be well connected to help you

import & export

– You do not have full control of your operation

– You have the risk of losing your intellectual

property

– You will face liabilities in Mexico in case of any

mistakes or problems with the operations

5 Business models

• Finding a Joint

Venture Partner

Acquiring an

existing operation

• Starting up with a

Stand Alone

operation

• Contract

Manufacturing

• Starting up with a

Shelter Program

– Employees will already have the

needed training for your process

– Legal and operational permits

might already be compliant

– High entrance cost

– You will be responsible for all

the previous and ongoing legal and

operational liabilities

5 Business models

• Finding a Joint

Venture Partner

• Acquiring an existing

operation

Starting up with a

Stand Alone

operation

• Contract

Manufacturing

• Starting up with a

Shelter Program

– You will have full control of your

operation

– High entrance cost

– High and costly learning curve

– Lack of local networking

– High risk and liabilities for all

legal, labor, fiscal and customs

start-up and operational permits

(functions that are not your core

business)

5 Business models

• Finding a Joint

Venture Partner

• Acquiring an existing

operation

• Starting up with a

Stand Alone

operation

Contract

Manufacturing

• Starting up with a

Shelter Program

– You will never have control

of your production

– You risk your intellectual

property

5 Business models

• Finding a Joint

Venture Partner

• Acquiring an existing

operation

• Starting up with a

Stand Alone

operation

• Contract

Manufacturing

Starting up with a

Shelter Program

– You will have immediate access

to the local networking and know-

how to do business in Mexico

– You have full control of your

operation

– You can start up in less than 9

weeks

– You can choose to not have a

legal entity in Mexico

– No liabilities in Mexico: labor,

fiscal, legal and other operational

permits

Incorporated

Operations are performed under clients’ Mexican Legal Entity.

This requires a more robust organization and income tax obligations.

Recommended only if you are required to invoice your customers in

Mexican Pesos

Not Incorporated

Operations are performed under American Industries’ Mexican Legal Entity. It

simplifies the compliance with Mexican regulations, translating into

important cost savings.

You will be exempt from income tax if you do not incorporate in Mexico.

American Industries is able to offer the same scope of services in either

framework. Sales in Mexico can be done in both scenarios.

Legal Entity’s Working Framework

Starting up under a shelter

program: Legal entities

10 things to look for in a Start up

Partner or Shelter Program

Make sure you get the following benefits:

1. Free Cost Model Simulation comparing different regions

2. Flexible commitment: on any size project (headcount or Sq. Ft.)

3. No entrance or exit fee at the termination of your contract (with

coordinated exit strategies)

4. Fast and worry free start-up operations (9 weeks)

5. Flexibility on how to operate in Mexico: incorporated or not Incorporated

6. Tax Savings: No VAT and no INCOME TAX for the first 4 years of operations

7. Billing transparency & no mark ups on purchasing in Mexico

8. Full Compliance Assistance: fiscal, customs, labor and environmental (no

red tape and no administrative risk or liabilities)

9. Customs Certified Program: quick processing on cross-border transactions

10. Ask for full administrative support: it will allow you to concentrate 100%

on your manufacturing operation, not on human resources recruitment,

looking for suppliers and so on.

1 STEP TO GET A FREE COST MODEL

SIMULATION FOR MEXICO

How much will it cost you to operate in Mexico?

When you request a Cost Model Simulation, you will

be able to compare the total monthly operating cost

and cost per hour of your operations in different

regions in Mexico, including the following criteria:

Cost of direct and indirect labor

Cost of shipments to and from the International

Ports of Entry

Cost of Real Estate Facility and Utilities

Other costs of operating in Mexico

Get a Cost Model Simulation

Request your free cost model today at:

http://CostModel.SupplyChainInMexico.com

Sign up for your Free Cost Model Simulation at:

http://CostModel.SupplyChainInMexico.com

By Xavier Hurtado

Manufacturing in Mexico Facilitator

facilitator@AmericanIndustriesGroup.com

www.SupplyChainInMexico.com