Government Regulations And Logistics For Getting Started With Manufacturing In Mexico: Demystifying the Path to Manufacturing Success in Mexico

Last Updated on October 19, 2023

Are you intrigued by the idea of expanding your manufacturing operations to Mexico? The prospect of tapping into the country's vibrant market is undoubtedly exciting. However, it comes with its unique set of challenges, primarily revolving around government regulations and logistics. Let's embark on this journey together and uncover the key aspects of regulations and logistics for Mexico manufacturing.

Navigating the Regulatory Labyrinth

Legal Structures: Setting the Foundation

Before diving into regulations and logistics for Mexico manufacturing, you must determine the most suitable legal structure for your business. This choice may entail establishing a Mexican subsidiary, collaborating through a joint venture, or utilizing the services of a shelter company. Each route has distinct implications for ownership, liability, and control.

Foreign Investment Laws: Decode the Rules

Mexico's foreign investment laws are crucial knowledge. These regulations can differ according to the sector in which your manufacturing business operates. Understanding these laws is essential to ensure compliance and avoid legal entanglements.

Navigating Permits and Licenses

Operating within the bounds of Mexican law necessitates a myriad of permits and licenses. From environmental and industrial safety permits to local business licenses, understanding and securing these documents are essential to maintain a smooth operation.

The most important thing that people fail to understand is that everything that goes into Mexico must have appropriate documentation, for example, certificate of origin.

Juan Cano, Operations Manager at NovaLink. 

All raw material entering Mexico needs a certificate of origin, a value for all materials and description. They need, in essence, what we call a value statement, which describes more in detail everything that is going into the country.  At which at this point material must be defined if it is exporting as a temporary or entering the country permanently. If materials for a product are going into the country permanently, there's different duties. Temporary means it's just going to be converted into finished goods and come back out.

The process of importing raw materials into Mexico from the United States is generally not difficult.  It is necessary to create a shipper's export declaration (SED) if the value of the raw material exceeds $2500 in order to notify the US government that raw material has left the country. Our customs broker handles this process.

Get an HTS Code for Your Product

To begin their manufacturing operations in Mexico it is always a wise idea to do some research ahead of time and get that information together before initiating any kind of contact with a manufacturing partner. The most important is to get an HTS code for your product. HTS stands for “Harmonized Tariff Schedule.” You can look up the HTS code on the U.S. International Trade Commission Government website and it will give you the HTS code for your finished goods. This code will tell you how much duties you will pay when your finished product comes from Mexico.

The HTS code is critical for many reasons: for example, if your finished product is not USMCA compliant, the HTS code will show if it will be affected by duties when it comes back into the U.S. depending on where the raw material is from. Now, if you are 100% sure everything is USMCA compliant, you have nothing to worry about. This is because it is not obligated to pay duties.

Choosing the Optimal Location

The Geography of Success

Selecting the right location for your manufacturing facility is more than just a matter of geography. Consider factors like proximity to suppliers, customers, and robust transportation infrastructure. Key industrial regions in Mexico, including the Bajio, Northern Border, and Central regions, are worthy contenders.

 Efficient Logistics: The Backbone of Success

The Road to Efficient Transportation

Efficient transportation of goods is at the core of a thriving manufacturing operation. Mexico boasts a well-developed network of roads and highways, alongside significant ports for international trade. Mastery of these routes is your ticket to streamlined logistics.

Customs Compliance: Navigating International Trade

Meeting customs regulations for both imports and exports is imperative. Mexico's extensive network of free trade agreements can significantly reduce trade barriers and simplify logistics, making your journey smoother.

Supply Chain Symphony

The key to manufacturing efficiency lies in the orchestration of your supply chain. Minimize lead times, manage costs, and keep inventory optimized. This diligence ensures a productive and cost-effective manufacturing process.

Even if you are paying low duties for your product, other factors should be considered, like extended lead times that would incur when imported from China. For example, if you are paying $3.50 for a product to be manufactured in China vs your cost to manufacture in Mexico, you need to consider the benefits from a logistics standpoint: high inventory impacts and warehouse costing. It might be a washout and you are better off manufacturing in Mexico.

Juan Cano, Operations Manager at NovaLink. 

Environmental Compliance and Safety

The Importance of Environmental and Safety Compliance

Adhering to Mexico's environmental and safety regulations is non-negotiable. Compliance prevents costly fines and disruptions to your operations. Make environmental responsibility a part of your manufacturing ethos.

Government Incentives

Exploring Incentives

Research the regulations and logistics for Mexico manufacturing for available incentives. These incentives can vary by location and industry, offering opportunities for cost reduction and competitive advantages.

Making sure that people have a very good understanding of USMCA, before they approach a partner like NovaLink would be a smart, important step for them to do. USMCA did not have many changes from the old NAFTA treaty with the exception of origins of the components especially in the textile industry, one of the largest growing manufacturing industries in Mexico. 

Juan Cano, Operations Manager at NovaLink. 

Mitigating Risks

In many ways, NovaLink can be of assistance to those who are unfamiliar with manufacturing in Mexico.  It would be helpful if you could provide us with information about your product and a basic BOM (bill of materials). It is still okay if the information is not available, as we can research all of this for you. 

Get Expert Legal Assistance

Collaborate with local law firms well-versed in Mexican business law. Their expertise will ensure you meet all legal requirements, preventing costly mistakes and legal challenges.

Conclusion

Embarking on manufacturing in Mexico is a journey fraught with potential. By understanding the regulatory environment and optimizing logistics, you can navigate these challenges effectively. Seek local expertise, adapt to the culture, and you'll be well on your way to a successful manufacturing operation in Mexico.

Frequently Asked Questions (FAQs) (H2)

FAQ 1: What are the key tax considerations for manufacturers in Mexico? (H3)

Key tax considerations in Mexico include Value Added Tax (VAT) and income tax. Consult with tax professionals to develop a tax strategy that optimizes your financial position.

FAQ 2: How can I protect my intellectual property in Mexico? (H3)

To safeguard your intellectual property in Mexico, register trademarks, patents, and copyrights as needed. Legal experts can guide you through the process.

FAQ 3: What are the primary challenges in dealing with Mexican labor unions? (H3)

Challenges with Mexican labor unions may include negotiations, strikes, and compliance with labor laws. Effective communication and respectful relationships are essential to navigate these challenges.

FAQ 4: What government incentives are available for manufacturers in Mexico? (H3)

Government incentives in Mexico may include tax breaks, grants, and subsidies. The specific incentives vary by location and industry, so research and expert consultation are essential.

FAQ 5: What are the main risks manufacturers should be aware of when operating in Mexico? (H3)

Key risks for manufacturers in Mexico include security concerns, political instability, and natural disasters. Implementing effective risk management strategies and careful planning is crucial for mitigating these challenges.