While China has been considered the go-to hub for production, new developments — including changes in international markets, the persistent challenges of shipping overseas, a labor shortage, and the inflation of operation costs — are making manufacturers reassess their business cases. There are also other and more expensive factors facing investors: the new Section 232 and 301 tariffs resulting from the rising trade tensions between the United States and China.
To circumvent these challenges, some companies are considering moving operations to other countries. Some businesses are looking to Vietnam or the Philippines, while many others are once again considering North America — and, more often than not, Mexico.
How about you? Thinking of relocating to Mexico? Whether you’re relocating your entire operation or a portion of it, there are five things to consider to get started.
Five things to consider before global relocation
1. Strategy. How confident are you in your current business case? It’s important to develop and thoroughly validate a business plan. This means evaluating your current financials against the manufacturing market in Mexico before you decide if a relocation or an expansion is feasible for your organization.
2. Site selection. Do you know where the right labor force is and current wages/benefits? Have you considered ship-from points and distance to suppliers, competitors, and customers? This is the time to conduct a labor and a logistics analysis. Site visits to explore industrial parks and potential suppliers/customers are beneficial and should be considered. Capitalize on the opportunity to meet with state officials during these visits to start relationships and explore possible incentive opportunities.
3. Real estate negotiations. Whether purchasing or leasing buildings or property, you should ensure that the land prices or lease rates offered to you are competitive. Take advantage of specialists to help you review all legal paperwork and assist with proper environmental due diligence.
4. Investment structuring, incorporation, and tax planning. Do you need to create a multiple-entity structure? How familiar are you with the Mexican IMMEX/Maquiladora program? You’ll need to do some homework to determine the best entity type, ownership, and tax elections. You will also have to review options to ensure you select the most beneficial structure for legal, tax, and financial purposes. Don’t underestimate the rigorous processes required to file for the various foreign trade and tax licenses.
5. Talent, taxes, and operations. Are you offering the appropriate salary and benefits for your region? Are you familiar with Mexico’s fiscal obligations? Whether recruiting skilled employees from Mexico or managing expatriates and Mexican work visas, you need to consider regional dynamics and tax implications.
Only you can decide if you’re ready to alter your position in the global marketplace by relocating or expanding into Mexico. Whether it’s the initial strategy, understanding Customs regulations, or reviewing contracts and legal documents, having a team on the ground and knowing what’s ahead of you is critical. If you have questions about a global expansion, give us a call.
