Thinking About Building An Auto Parts Factory In Mexico? Here’s What You Need To Know
With Mexico’s skilled, low-cost labor force and proximity to the US and Canadian markets, it’s no wonder that Mexican manufacturing is thriving. Millions of manufacturing orders are moving from China to Mexico, something we believe is great for all companies involved (see Why Mexico Is A Better Place To Source Manufacturing Than China for more info).
However, as part of this boom in Mexican manufacturing, an army of manufacturing consultants has arisen. Many of these consultants promise US and Canadian companies that building and operating their own manufacturing facility in Mexico will be as easy as writing a few checks. Just buy some land, pay the construction bill, and then hire the consulting company to provide on-site management. It’s “easy,” or so they say.
While we’re a bit biased, we think the case against building a factory is pretty strong when compared to the benefits of contracting an existing manufacturer like Intran.
The Risks And Challenges That Come With Building A Factory In Mexico
Many US and Canadian companies are interested in building a factory in Mexico as a way to minimize their production costs. However, factory construction cost analysis often overlooks the following:
1. Capital Risk And Exposure
Aside from the millions of dollars needed to build a manufacturing plant, there are two things you should know:
- factories need to run at or near full capacity to make money
- the global economy is hard to predict
These two factors represent the massive risks that every manufacturer faces. Expand too quickly, and your capacity can outstrip demand. Invest at the wrong time, and your factory could open for business just as the next big recession hits.
2. Operations Experience Matters
Consider US and Mexican import/export regulations. Mexican manufacturers face a series of requirements to transport products to the US.
In fact, many factories hire separate consultants to wade the confusing waters of regulations for them. Even then, most of these consultants have only a few years of experience under their belt, and mistakes often occur. And when something goes wrong—whether it’s a shipment being held for inspection or a simple miscalculation—that’s when relationships and connections come in handy.
At Intran, we have nearly 50 years of practical experience working with US and Mexican trade regulations. Dealing with tricky paperwork is just as much a part of our job as manufacturing parts. And on the rare occasion we miss something, we know exactly who to talk to and how to fix it.
Beyond regulations and paperwork, there are other important operational considerations:
- Hiring and retaining skilled workers is challenging worldwide. This is another area where operating experience is so important.
- Experienced workers (and supervisors and technicians and managers) are invaluable. However, it’s hard for consulting companies that provide contract management services to hire and retain great workers. Workers know that employment with a contract service isn’t as secure as employment with an established manufacturer.
Advantages Of Working With An Established Manufacturer In Mexico
Contracting an existing auto parts manufacturer has a number of advantages over plant construction:
1. Risk-Benefit Analysis – Why Buy When You Can Contract?
If the global economy grinds to a halt in 18 months, companies that have sunk millions into new manufacturing plants are going to lose massive amounts of money. However, companies that contract manufacturing have very little risk.
Considering the volatility of the global economy – and the fact that this volatility only seems to be increasing – the risk-benefit analysis of a massive capital investment must be incredibly conservative.
2. Flexibility And Performance – Worthwhile Investment?
A massive investment in a manufacturing plant isn’t something you can walk away from without substantial financial penalties.
Contract manufacturing, on the other hand, is kind of like dating. You can contract an existing company to build your parts or components, and if you don’t like the performance, you can fire them. If your company makes a mistake and contracts the wrong manufacturer, the mistake is easy (and relatively cheap) to correct.
3. Clarity Of Purpose, Core Strengths, And What Makes Companies Great
Every company has a mission that guides every action and decision. At Intran, our mission is to be Mexico’s premier automotive supplier and component manufacturer. We’ve eaten, lived, and breathed manufacturing for nearly 50 years.
A lot of the companies that contract us to manufacture components – like Delphi, Bosch, UCI-Fram, Borg Warner, John Deere, TI Automotive – have grown just as we have. (More about the brands and industries we serve here.)
We believe that much of our success – and our clients’ success – stems from the fact that our companies are focused. We know who our company is and what we want to be, and we don’t stray from that purpose. We know what our core strengths are, and we know how vital these strengths are to our success.
Is your company’s mission to be one of Mexico’s premier manufacturers? If not, is it reasonable to expect success?
Questions? Ready To Discuss The Pros And Cons Of Contract Manufacturing?
If you have any questions about what it takes to manufacture auto parts in Mexico, contact the experts at Intran. With nearly 50 years of auto part and component manufacturing experience, we know what successful Mexican manufacturing looks like.