Doing   Business   in Mexico

When the North American Free Trade Agreement (NAFTA) was approved in 1994, manufacturers began flocking to Mexico to take advantage of reduced production overhead and better profit margins. But setting up south-of-the-border operations presents a myriad of cultural, legal, and logistical challenges for companies that try to do it themselves.

Some companies hire consultants or contract manufacturers, but it may be worthwhile to engage the services of a shelter operation that essentially does all the legwork.

Through a shelter program, manufacturing companies can establish a Mexican firm called a maquiladora without owning a Mexican business. Maquiladoras have been used since the 1960's when Mexico's National Border Industrialization Program was established.

 How it works: The U.S. company contracts a firm that specializes in providing certain services. The shelter firm generally arranges for appropriate facilities; handles transactions, permits and licenses; sets up bank accounts; and hires employees. In exchange, the firm charges a fee based on labor and costs. The U.S. company then moves equipment and machinery to the facility and designates a production supervisor.

For more information about maquiladoras, click here to visit the federal government's International Trade Data System Web site.

Once the operation is up and running, the shelter firm ensures compliance with Mexican laws and agencies, and handles transfer pricing, asset taxes, labor laws, employee matters, and ongoing hiring and termination. It also handles border crossing documentation, U.S. and Mexico broker management, and transportation arrangements.

This allows the American firm to establish a maquiladora in Mexico without having to learn all the cultural differences and local laws and regulations. The U.S. firm can then be involved in production efficiency and quality, while the shelter firm handles other tasks required to keep the operation running smoothly.

Most shelter firms are a combination of American and Mexican companies, and their efficiency has advanced to a point where a U.S. firm can establish a Mexican operation in as little as six weeks without making a single border crossing.

The benefits are often worth it. Setting up a manufacturing facility in Mexico can result in reduced production costs and better profit margins. While many firms establish and manage their own Mexican corporations with productive results, the shelter option is a more maintenance-free method of manufacturing in Mexico.

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