NovaLink

Manufacturing in Mexico

China

China Intellectual Property Theft

· ·

One of President Trump’s justifications for the trade war is China intellectual property theft: is the theft of intellectual property from American manufacturing companies.

These violations – which run from counterfeiting brands and stealing secrets to putting pressure on companies to share technology with local Chinese companies  – has been a sore spot in trade negotiations and treaties between the two countries. As a result, companies that are considering having their products made in China are wary to do so for fear of having their products copied or outright stolen from them.

 

What is Intellectual Property Theft?

According to the World Intellectual Property Organization, Intellectual property (IP) “refers to creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names and images used in commerce.”

“IP is protected in law by, for example, patents, copyright and trademarks, which enable people to earn recognition or financial benefit from what they invent or create. By striking the right balance between the interests of innovators and the wider public interest, the IP system aims to foster an environment in which creativity and innovation can flourish.”

China intellectual property theft violates this definition in a few ways:  One, the Chinese government requires foreign firms to form ventures with local partners in China, which can result in the transfer of technology and product manufacturing designs. Two, the Chinese government actively encourages businesses to carry out their R&D activities only inside China. 

It’s a catch-22: If companies do not agree to these terms, the Chinese government then restricts them from manufacturing in their company.  If they DO agree to the terms, the companies are then effectively giving over their trade secrets to the Chinese firms and in turn, the Chinese government. 

 

Is China Stealing Ideas from Manufacturers?

There seems to be plenty of evidence that they are:  According to the Chicago Tribune, there are have been several high profile cases involving large American companies in just the last 5 years alone:

• Federal prosecutors charged in an indictment unsealed last month that the Chinese tech giant Huawei stole trade secrets from U.S. cellphone company T-Mobile and offered bonuses to employees who managed to swipe technology from other companies.

• Apple has been infiltrated by thieves trying to steal driverless car technology for a Chinese company, according to criminal charges filed in Silicon Valley. 

• In November 2019, the Justice Department charged a government-owned Chinese company, Fujian Jinhua Integrated Circuit Co., and co-conspirators with stealing trade secrets from the U.S. semiconductor company Micron Technology. 

• A year ago, a Chinese company, Sinovel Wind Group, was convicted in a federal court in Wisconsin of stealing technology —the electronic brains that run wind turbines — from its American partner, AMSC, formerly known as American Superconductor Inc.

According to a 2017 report by the United States Trade Representative, China intellectual property theft currently costs between $225 billion and $600 billion annually.

 

How do I protect myself from China Intellectual Property Theft?

 

If you have concerns about China intellectual property theft, there are a few steps that you can take to secure your product rights.  It should be noted that you should consider doing all of the following suggestions BEFORE you begin manufacturing in China:  

  • Engage legal counsel that has knowledge of patent law in the US & China.
  • Protect your designs in your home market (patent, trademark, etc.): Filing patents and trademarks can be expensive, but it is a worthwhile investment if you have to defend your right to the product later.
  • Get signed exclusivity contracts from your suppliers: Again, if you are dealing with sourcing in China (a common practice that is often demanded by Chinese manufacturers) this will be very difficult.  If you are sourcing from the US, this will be less of a challenge.
  • Look at the customers of a factory: Don’t send sensitive designs to factories that have many larger customers that might want your product.
  • Use multiple factories for components and do final assembly somewhere else: This will keep companies who may steal from having access to all your parts, and knowledge on how you do the assembly for your product.


The Best Way to Protect Against China intellectual property theft: Manufacture in Mexico

All the reasons stated above will help you protect yourself against possible China intellectual property theft, but there is no guarantee that once your product is sent to China that it will happen anyway.  

There is one sure-proof way to ensure that your manufacturing product can be safe from intellectual property theft: have it produced in Mexico with a reputable nearshore manufacturing partner like NovaLink.

Unlike firms in China, nearshore manufacturing partners like NovaLink will ensure that your product, and it’s intellectual property rights, will be protected.  NovaLink will allow you to source your product from anywhere you like, work with our design engineers for production, have it assembled in our factories or with another partner, all while protecting your rights legally & with the strictest confidence.  

Your intellectual property rights in Mexico are strengthened even more by the new USMCA agreement, with one of the main points of the new treaty being the protection of Intellectual property rights of products between the three countries.  According to the Office of the United States Trade Representative: 

“The United States, Mexico, and Canada have reached an agreement on a modernized, high-standard Intellectual Property (IP) chapter that provides strong and effective protection and enforcement of IP rights critical to driving innovation, creating economic growth, and supporting American jobs.” 

The enforcement of these rights makes it very difficult, next to impossible, to steal intellectual property rights of companies manufacturing in Mexico.  

NovaLink has the process of getting started with manufacturing in Mexico down to a precise science.  Whether you are a large corporation or a business trying to start assembly in Mexico for their product, NovaLink has the process, consulting for supply chain, software, facilities and manpower to get your business up and running quickly and efficiently with minimal cost.

Do you need a nearshore manufacturing partner or solution for your business? Contact NovaLink today: 956-621-7362 or visit the NovaLink website. 

Moving Your Manufacturing Out of China

· ·

If you are currently have shelter manufacturing services in China, but find the tariffs imposed by the United States are hurting your bottom line, or you are worried about China intellectual property theft, you may consider moving your manufacturing out of China to another country like the US or even possibly setup product assembly in Mexico. 

 

Moving production from one location to another is always challenging, even more so when moving from across the Pacific.  There are many details that need to be adhered to, and not following or paying attention to these details could be costly down the road.  The following article details information you may need to know when moving out of China, and what some of the best manufacturing options for your company may be, like manufacturing in Mexico.

Why are companies moving manufacturing out of China?

For many companies, the primary reason for moving manufacturing out of China is the current trade tariffs being levied against China by the United States. On July 6, 2018, in a separate move aimed at China, the Trump administration set a tariff of 25 percent on 818 categories of goods imported from China worth $50 billion.  

In response to these tariffs, many countries and their respective businesses, not just in the United States, choose to move manufacturing out of China to a new location, such as Mexico.  Even firms in China, in an attempt to avoid the 25% tax, are moving from their home country.

Why Sourcing for Your Materials is Important

According to the manufacturing blog Quality Inspection, finding materials for use in manufacturing in China or by Chinese firms is proving difficult:

“I used to believe that Chinese manufacturers were great at sourcing their own materials/components.  And yet… After reviewing the way they manage their procurement, I have seen more mismanagement than maybe in any other function (production, quality, etc.).  There is a strong focus on getting a deal with the lowest price, rather than securing the lowest ‘total cost of ownership’. This has several implications that are highly detrimental to quality.  It is a well-known fact that people who screen and select suppliers often get a commission ‘under the table’. A Chinese component supplier routinely asks “what is your commission, so that I know what price to offer?”

Affordable Labor in Your New Location

Salaries for the labor force in China is also becoming a major issue for manufacturers looking to produce their goods at the best rate possible.  According to CNBC, turns out that “made in China” is not so cheap anymore as labor costs have risen rapidly in the country’s vast manufacturing sector.

“Chinese factory workers are now getting paid more than ever: Average hourly wages hit $3.60 last year, spiking 64 percent from 2011, according to market research firm Euromonitor. That’s more than five times hourly manufacturing wages in India, and is more on par with countries such as Portugal and South Africa. As China’s economy expanded at breakneck speed, so has pay for employees. But the wage increase has translated to higher costs for companies with assembly lines in China. Some firms are now taking their business elsewhere, which also means China could start losing jobs to other developing countries.”

What You Need to Know About Leaving China

The most important consideration to move manufacturing out of China to either the US or Mexico, would be location.  The cost of your production for your operations and the location for your supply chains will become very important.  As one of the main considerations for many companies moving out of China is proximity, finding the best location closer to your market will need to be a priority.  

According to the China Law Blog, the location decision should be made well in advance of leaving China, and scrutinized to ensure the new location will be right for your business.

“Finding a new supplier or location to operate a factory is a significant business decision and it should be treated as such.  Some of our clients are interested in finding new suppliers and some want to start up an entire new factories themselves. We need to clearly distinguish between the two. In sourcing, for example, the range of what can and will be done is huge, from a simple purchase of a fungible commodity product all the way to purchasing high tech electronics where the factory is expected to provide substantial engineering input. Some of our clients are highly focused on costs, while others are highly focused on quality. Figuring all this out for each client is usually complicated and time consuming and the resulting project is quite different depending on the client’s goals and the result of the analysis.”

It is also important to closely examine the BOM of your operation before leaving China to ensure you are able to get all the materials you need for production outside of China. This is crucial if you want to avoid paying the tariff tax on your materials, as certain components of a finished product, raw materials originate or processing of the materials takes place or comes from China, you will most likely still incur the tariff fee.   

According to the Sourcing Journal: “To avoid this, companies need to take a holistic look at their sourcing strategy with all relevant factors considered. Often this means examining the product’s Bill of Materials (BOM), which gives a complete and hierarchical listing of any raw materials, sub-assemblies, components, or ingredients and the quantities and costs used in the product. Companies must then check the materials they use against tariff specifications to ensure the costs they’re trying to avoid by sourcing from China are actually avoided. In some cases, shifting production from China could actually yield a net increase in costs.”

You must have ALL of your product made outside of China to avoid paying the tariff

A common misconception is that because you have manufactured most of your product in a country other than China, with only a few components still made there, you can avoid the tariff.  This is incorrect: If you have parts made and then shipped somewhere else for manufacturing, you will still have to pay a tariff.  In fact, doing this might not only keep your products subject to the tariffs on Chinese products, trying to pass a finished product as manufactured in another country with Chinese components is illegal and the company making the manufacturing can be subject to stiff financial penalties and even jail time. According to the China Law Blog:

“…shipping a Made in China product to Taiwan or Vietnam or Thailand or really anywhere else in the world before shipping it to the United States will somehow render that product to no longer be considered to have been made in China for US tariff purposes. If this is all you do we can guarantee your product will still be made in China and you will almost certainly be hit with the full force of the tariffs and with a lot more. And yet, all the time we hear from our own clients and we see on the internet that this fact is not widely understood. The fact that many Chinese factories encourage this sort of illicit transshipping by insisting that it is either “perfectly legal” or “will never be detected” obviously does not help.”

Alternative to China Manufacturing: Mexico

If you are one of the companies that are looking for a viable alternative to move manufacturing out of China, you may want to consider changing your company’s base manufacturing to Mexico.

The new USMCA trade agreement between Mexico, Canada and the United States that is ready to be ratified by the end of this year will provide lower tariff rates and reduced duty rates between the three nations, which in turn will allow manufacturing goods imported between them easier and cost effective.  Some other benefits and points to consider:

  • There are no tariffs for products made in many of the growing manufacturing industries in Mexico and imported into the United States that meet USMCA rules of origin requirements.
  • Manufacturing goods in Mexico also means lower shipping time for goods to get into the United States, as well as lower average cost of shipping.
  • For companies that are getting established, starting operations in Mexico is almost half the time it takes to begin manufacturing operations in China.
  • Mexico, like China, has a highly-skilled and productive labor pool to scale up your operations as needed.

assWe believe that moving your manufacturing to Mexico is the obvious, and most cost-effective choice for manufacturing companies who may be concerned about the ongoing risks of operating overseas manufacturing.  Contact NovaLink today for a free consultation on how you can move manufacturing out of China to Mexico easily and seamlessly.

What’s Your U.S. Manufacturing and Tariff Strategy?

· ·

U.S. tax reform legislation of 2017 allowed companies to repatriate overseas cash at a one-time 15.5 percent tax rate, down from the 35 percent paid in the past. But what will companies do with all that cash now that it’s back home? Some are buying back stock, but others are investing in U.S. manufacturing sites. And now, with nearly 6,000 Harmonized Tariff Schedule (HTS) item classifications identified for the imposition of a 10 percent to 25 percent penalty tariff on imports from China, it is time to consider all options. Even though some products, parts, and raw materials have escaped the penalties so far, the future of new tariffs and penalties is uncertain, especially with companies that have Mexico industrial manufacturing operations. Will your products be next? What is your U.S. manufacturing and tariff strategy?

Should you be considering Mexico contract manufacturing? Sourcing from other countries? Reshoring? Building inventories? Use of a foreign-trade zone? Increasing prices to your customers? And what about exports? Every time we impose a penalty tariff, foreign countries respond with an import tariff of their own. Have you considered how these foreign tariffs will affect your export sales?

Read the Article

Avoiding the China Tariffs

· ·

Beginning in July of 2018, the United States imposed a 25 percent tariff  on goods made from factories in China when they’re imported into the US. The goal of this tariff, and other China tariffs, is to enforce more fair trade practices with the US.  The end result is products will be more expensive for private and business consumers, as the expense will be passed on to consumers.

For many companies manufacturing goods in China, there are some implications related to the tariff: any of the $200 Billion worth of goods included on the tariff list (ranging from dishwashers to Fitbit fitness trackers to food seasonings) by the United States are subject to the 25 percent tariff tax. (In fact, some companies are3 even paying up to 40%, for goods such as garment materials.) This will inevitably place some companies in the unfortunate position of having to raise the price of their products to cover the cost of doing business in China.  

Fortunately, there is a viable solution for companies who may be facing this China tariffs: Reevaluate your supply chain model by Reshoring Manufacturing to North America.

The new USMCA trade agreement between Mexico, Canada and the United States that is ready to be ratified by the end of this year will provide lower tariff rates and reduced duty rates between the three nations, which in turn will allow manufacturing goods imported between them easier and cost effective.  Some other benefits and points to consider:

  • There are no tariffs for products made in Mexico and imported into the United States that meet USMCA rules of origin requirements.
  • Manufacturing in Mexico vs China also means lower shipping time for goods to get into the United States, as well as lower average cost of shipping.
  • For companies that are getting established, starting operations in Mexico is almost half the time it takes to begin manufacturing operations in China.
  • Mexico, like China, has a highly-skilled and productive labor pool to scale up your operations as needed.


We believe that moving to Mexico shelter manufacturing services is the obvious, and most cost-effective choice for manufacturing companies who may be concerned about the ongoing risks of operating overseas manufacturing.  Contact NovaLink today for free consultation how you can change your manufacturing base from China to Mexico easily and seamlessly.

Contract Manufacturing in Mexico

· ·

With the new trade agreement in place between the US and Mexico, companies seeking to initiate or move their operations to a more affordable environment now have a better option rather than locations in China or Asia.  Contract Manufacturing in Mexico has many upsides: the cost and convenience efficiencies of Mexico full service manufacturing provide just some of the numerous benefits.

What is Contract Manufacturing?

Contract manufacturing refers to the agreement between a company that is making a product and a company or firm (“contract manufacturer”) that contracts with a firm for components or products. In short, contract manufacturing is a form of outsourcing.

At NovaLink, when a potential client approaches us with the intention of finding a contracting partner, and it is determined the client is a good fit for Contract Manufacturing in Mexico, the client is carefully put through a 9-step process to ensure the relationship and transition of business is conducted smoothly.  This includes:

  • Project Analysis
  • Site Visits
  • Program Scope
  • Contracts
  • Classifications / Permitting
  • Relocation / Installation
  • Training
  • Manufacturing
  • Distribution / Warehousing

NovaLink, not unlike other firms conducting Contract Manufacturing in Mexico, will accommodate the client with most of the logistics, labor and factory setup in getting the manufacturing project off and running.

The Contract Manufacturing in Mexico Labor Force

The most exclusively unique aspect of Contract Manufacturing in Mexico is the labor force,  the Mexican Maquiladora Program.

Established in the mid 1960’s, the Mexican Maquiladora Program has allowed foreign companies to start a manufacturing presence in Mexico with the goal of taking advantage of the lower cost labor force, while still being able to produce a high-quality end product. The Maquiladora program has evolved into one of Mexico’s most important sources of employment and revenue: at NovaLink, we employ over 3,000 workers from Maquiladora program and country-wide, 1 million Mexican workers are currently employed. Read about 6 Misconceptions About Manufacturing in Mexico.

Mexico has remained consistent with costs and taxing, which allows companies to plan budgetary needs in advance and avoid any surprises that may set them back. It has also permitted U.S. companies to rely on Mexico as a manufacturing partner. As of 2015, 90% of Fortune 500 companies have investments in Mexico, making the maquiladora industry vital to the U.S. economy.

Are you a good fit for NovaLink and Contract Manufacturing in Mexico?

To better understand if your product or company is a good fit for manufacturing with NovaLink, we have provided a short list of items and practices that unfortunately we cannot accommodate.   

Good Fit

  • If you are a startup, your company needs to have full-funding from an investor for your project.  We do not work with startups without funding.
  • Your manufacturing, whether your are doing your own production or outsourcing, has a steady, consistent volume.
  • Your product requires at least 5 or more employees to produce.
  • Your product requires complex labor or assembly in Mexico.

Not a Good Fit

  • We do not work with companies that are interested in doing “short runs”.
  • Simple, machine based production.
  • We prefer to work with companies that have their own equipment for manufacturing and are seeking to relocate it to Mexico.  We are able to source equipment for you if this is an issue, and the additional costs will be included in your quote.
  • We do not produce Spec products.  We encourage our clients to have spec products already produced before engaging with us.
  • We do not produce the following:
    • Shoes
    • Chemical Products or any products that contain hazardous materials
    • Food or Beverage products
    • Weapons or Para-Military products

To learn more about products and service we do provide, please see the Industries We Serve page.

Advantages of Contract Manufacturing in Mexico

In addition to the lower labor costs associated with the Maquiladora program, the primary business benefit for Contract Manufacturing in Mexico is the proximity of Mexico to the U.S.: this is a distinct advantage over other low cost manufacturing regions of the world.

The production of company goods are closer to the U.S. border; because transit time for components going in and products coming out is significantly shorter, it enables faster time to the consumer market than shipping across the Pacific Ocean, which can take weeks.

The Mexican government is very friendly to foreign business and investment, as demonstrated by their 44 trade agreements with countries around the globe.

U.S.-made parts and products are used by Mexico Manufacturers up to four times more than China; this is a tremendous benefit to suppliers in the United States.

The U.S. and Mexico share similar cultures, have a minimal language barrier, and comparable time zones. In addition, English-speaking middle management in the Mexican workforce is plentiful (as opposed to China where speaking English is actually discouraged) alleviating the need for language translators. Mexico enjoys lower medical costs for its workforce as compared to the U.S., allowing companies to hire additional employees with minimal expense for medical benefits. Mexico also operates on a 48 hour work week.

Contract Manufacturing in Mexico, is the Smarter, Better Choice

There are many reasons why manufacturing in Mexico is simply the better solution: Mexico Manufacturing represents the best of both worlds for manufacturing companies who seek to increase quality and production while reducing costs.

Facebook
Twitter
YouTube
LinkedIn
Instagram