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Intellectual Property Protection Laws in Mexico Safeguard Innovation

NovaAdmin · September 21, 2022 ·

In an era of increasing economic disruption, intellectual property protection laws in Mexico safeguards companies’ most precious asset.

Innovation does not exist in a vacuum. It needs to be protected by a coherent set of rules that nurture it. For decades, intellectual property protection laws in Mexico have provided a framework to incentivize innovation, mobilize development, and protect the IP of foreign companies doing business there.

Intellectual property protection laws in Mexico have been part of the nation’s legal system since its founding in the early 1800s. Today, Mexico ranks in the top 10 Latin American and Caribbean economies providing IP protection. This is according to the International Intellectual Property Index. The Index is an annual report issued by the US Chamber of Commerce.

Meanwhile, countless cutting-edge industries have been gradually establishing themselves in Mexico, including advanced manufacturing, biopharmaceuticals, creative content, and technologies that are a part of the digital economy. This development is due to the high level of protection that intellectual property enjoys in the country.

Mexico’s intellectual property regime is modeled on laws similar to those in the United States. As a result, it undoubtedly leads the way in the region in fostering IP-driven foreign investment. This is the case even though Mexico can still improve its protective framework. Therefore, it is essential to consider how Mexico achieved its high ranking in the Index published by the US Chamber of Commerce and what challenges must be addressed to become a leading IP-driven investment powerhouse.

Intellectual Property Protection Laws in Mexico

Mexico’s competitive advantage for IP-intensive industries dates back to the days of the North American Free Trade Agreement (NAFTA). The NAFTA was a high-level agreement that strengthened the legal and regulatory framework for domestic and IP-intensive industries that migrated to the country due to increased foreign direct investment (FDI).

The reduction of trade barriers and the greater access to North American markets provided by the Agreement led to an increase in FDI and a more significant contribution of exports and investment to Mexico’s gross domestic product (GDP). These factors, when combined, led to an improvement in the productivity of the Mexican national economy and its global competitiveness.

Some 25 years later, the United States-Mexico-Canada Agreement (USMCA) provided an opportunity to harmonize further and strengthen trade in the region. Entering into force of law on July 1, 2020, the USMCA revised the original NAFTA to provide 21st-century legal protections. In addition to recognizing the benefits of effective intellectual property protection to the North American economy, the USMCA also included provisions to strengthen Mexico’s IP policy framework.

As defined in Chapter 20 of the new trade agreement, The USMCA provided for an improved variety of regulations regarding intellectual property. The chapter includes protection for trademarks, trade secrets, and online copyright enforcement. Together, the past 25 years have created a clear competitive advantage for Mexico and a roadmap for the protection of intellectual property in Latin America.

With the implementation of some of the USMCA’s intellectual property commitments, Mexico’s score in the 2022 IP Index improved. In fact, Mexico received only a 12.38% overall score out of a possible 100% in the inaugural edition of this Index in 2012.

In the most recent edition in 2022, Mexico demonstrated a noteworthy improvement in the Index. The US Chamber of Commerce issued an overall score of 58.98%. As a result, the country now ranks in the top half of the economies evaluated by the US Chamber of Commerce’s Index. It occupies the twenty-third position out of the fifty-three nations that are considered. Mexico leads the way in the region, ranking ahead of the other Latin American economies included in the annual report.

However, it is essential to remember that what lies behind the facts and figures in the US Department of Commerce document is a crucial point: Why is it important for Mexico to continue its investment in more robust intellectual property protection? Mexico currently demonstrates a vibrant startup community, a growing and skilled workforce, a rapidly expanding creative community, and an environment that protects the intellectual property of foreign-based manufacturers that have invested in the robust Mexican economy.

Mexican officials are fully mindful that investing in adequate intellectual property protection is essential to support the growth and health of each of these sectors.

The 2022 Index illustrates that countries with the most effective developed intellectual property frameworks are most likely to reap various socio-economic benefits. For example, those countries with robust intellectual property systems are 38% more likely to attract venture capital and private equity, which will be critical to the growth of startups, manufacturers, and other vital businesses in Mexico. Similarly, the workforce employed in knowledge-intensive sectors is 54% higher in countries with effective IP ecosystems.

This will be essential to continue growing and diversifying Mexico’s workforce. As the country looks to expand the reach of its cultural and creative industry and attract more advanced manufacturing investment, a solid intellectual property framework can deliver the protections necessary to grow jobs in each area.

For Mexico to continue reaping the many benefits that effective intellectual property systems provide, the Mexican government must continue to make the conscious political decision to invest in intellectual property and implement its pending commitments outlined in the USMCA.

Almost two years have passed since the international agreement entered into force in Mexico, but many critical provisions regarding intellectual property remain to be implemented in its national laws. For instance, life sciences innovators await the application of USMCA commitments on patentable subject matter, biopharmaceutical patent enforcement mechanisms, and patent term restoration.

The protection of the creative content industries could be further strengthened through greater clarity on the responsibility of Internet Service Providers (ISPs) to deal with illegal and infringing content (without hampering legal trade).

Mexico is projected to become the world’s seventh-largest economy by 2050. A truly effective and modernized intellectual property ecosystem is essential for the country to achieve that goal.

Suppose Mexico succeeds in continuing the measurable progress it has made in this critical area of the economy. In that case, the country can continue to serve as an example to other regional economies. It can also be viewed as a model for emerging markets of how innovation and creativity, fueled by intellectual property, can support economic growth. These things promote global competitiveness and encourage emerging markets to compete with the world’s largest and most highly-developed economies.

This article first appeared on the Shoreview Management Advisor’s blog.

The Commercial Relationship Between Mexico and China Is Vibrant

NovaAdmin · September 12, 2022 ·

The commercial relationship between Mexico and China has expanded in The bilateral trade flow between both countries reached more than $100 billion dollars last year in 2021. This figure demonstrates that it is significantly higher than during the years prior to the coronavirus pandemic (2019). During that period, Chinese exports to Mexico represented $93 billion. Despite the steadily growing volume of trade between the two nations, there is still more room to further develop the commercial relationship between China and Mexico.

The commercial relationship between Mexico and China has expanded in The bilateral trade flow between both countries reached more than $100 billion dollars last year in 2021. Click To Tweet

Thus far in the current year, the bilateral trade flow grew by US $384 million in the first half of 2022. This figure is higher than the same period the previous year of 2021. Likewise, there is a gigantic trade deficit between the two countries by a factor of almost 7 to 1. This means that Mexico imports $ 7 dollars’ worth of goods from China while Mexico only exports $1 dollar, according to 2020 figures.

The global investment situation that is favorable toward the nearshoring and relocation of manufacturing plants in North America is an excellent opportunity for Mexico to expand trade with China and simultaneously attract investment from China. An activity of this nature would serve to further expand the commercial relationship between Mexico and China.

It is important to note that the lion’s share of Chinese exports to Mexico is concentrated in manufacturing and, more specifically, the electronics sector. On the other hand, regarding Mexican exports to China copper ore stands out. In recent decades, Mexico and China have emerged as two countries with outstanding manufacturing industries. The competition between Mexico and China to attract plants has resulted in an economic rivalry, but there is also an opportunity for Mexico and China to expand their commercial relations as a result of more foreign direct investment by Chinese businesses into Mexican manufacturing facilities.

It is important to note that China has been one of the most important trading partners for Mexico in recent years. According to Trading Economics data, Mexico exported a total of just under US $9 billion dollars’ worth of goods to the Asian country in 2021.

Furthermore. China’s foreign trade has recovered after the pandemic affected both its exports and imports. According to China’s General Administration of Customs, commercial exchange between the two nations increased by more than 20% in 2021.

Last year the commercial exchange between China and Mexico reached more than 100 billion dollars. This is according to data compiled by the Bank of Mexico. Of this amount, Mexico exported less than 10% of this figure to China. In order to address the economic disparity in exports between Mexico and China, the former country must find ways to expand its sales to the latter nation.

The most exported products from Mexico to China are copper, auto parts, lead, automobiles, and pork. On the American continent, Mexico represents China’s second most important trading partner, the first being the United States. The products that Mexico imports from China in the greatest volumes are office machine components, telephones, and LCDs.

Mexico and China compete today for the position of first commercial partner of the United States. In the first two months of 2021, Mexico regained its position as the United States’ principal trading partner.US trade with Mexico covered almost 15% of the total trade that the former country had with the world.

Bilateral trade between Mexico and the United States reached more than $600 billion dollars and the US economy imported approximately $384 billion dollars of Mexican imports. Unlike the commercial relationship between Mexico and China, Mexico runs a trade surplus with its neighbor to the North. This is projected to continue for the foreseeable future.

In spite of the fact that many consider China to be the world’s factory, Mexico has spent several decades developing its manufacturing and export sectors. Consequently, Mexico has been able to compete closely with developed countries.

Some observers regard China as the leading manufacturer in the world, but Mexico has made significant progress in this area through the signing and implementation of an extensive network of Free Trade Agreements (13 with 50 countries). These commercial accords have generated significant levels of growth for the country’s export sector and have made Mexico a prime destination for foreign direct investment in the manufacturing sector.

In 2012, Mexico had its first trade surplus since 1997. This achievement was due to the strengthening of its manufacturing exports, especially to the United States. One of the necessary changes that must occur to enable the country to balance its current account is to bring the commercial relationship between Mexico and China closer to trade parity.

As of 2018, the proportion of manufactured goods as a share of Mexican exports has grown to almost 90%.

Finally, it is important to note that the commercial relationship between Mexico and China is evolving and quite complex. Among top-level Mexican economic policymakers, there is a concern in certain manufacturing sectors of the domestic economy about the role of China in world trade.

At NovaLink, we believe that Mexican manufacturing offers the best value in terms of cost, quality, productivity, and delivery. If you are currently manufacturing your products in China but find that the tariffs imposed by the United States are adversely affecting your bottom line, consider moving your production to another country such as the United States or Mexico.

When You See the Phrase “Made in China”, What Does It Mean to You?

NovaAdmin · April 5, 2022 ·

Consumers took the “Made in China” label for granted: few questioned the quality and were often just attracted to the low price. The average consumer now scrutinizes what “Made in China” really means and asks: Is it really that cheap? What’s the quality like? And most importantly; Are the Chinese goods, despite their price, worth it?

Products of Poor Quality

Consumers always wonder why everything in American stores seems to be made in China, and that’s because it’s cheaper. Profit is why companies exist, so finding the best deal was the best way to cut margins. Usually, that meant China.

As soon as the North American Free Trade Agreement was passed in 1992, manufacturing in the United States changed. With Nearshoring, companies can now make their goods closer to home (in Canada or Mexico) and enjoy the same cost savings without having to worry about shipping them overseas.

According to manufacturing agent Michael Diliberto, Chinese manufacturers had to cut corners to compete with Mexico and North America.

First, and foremost, Chinese domestic manufacturers generally go for either the best product or the cheapest product. So, if you are not making the best, you are racing to the bottom to make the cheapest. Consumers looking at products from China are not generally looking at quality; it is assumed that if you want quality, then you buy the best one; otherwise just buy the cheap one. Manufacturers, especially in China, are not rewarded for making incrementally better products.

Paying Extra for Any Kind of Quality

By cutting corners when manufacturing to produce the cheapest products, you can save money in the short run, but it has a downside: if quality is important to the company (as it is for most), the company will have to pay more for it, and the increasing costs will inevitably lead to:

Take a bite out of your profits
Consumers will pay for it, as cost will be passed on to them.

According to The Economist:

But with virtually everything made in China now, competition is no longer about quality–it’s only about price. Where’s the competition in quality when everything is made in China? There isn’t any; the quality is low regardless of the brand on the device, tool or appliance. The conclusion pretty much boils down to the simple rule: you get what you pay for. In the case of “Made in China” it also means that that it is no longer the most cost-effective option.

Tariffs & Duties

We shouldn’t forget tariffs: No matter how good the Chinese goods are, you’ll pay a tariff on them: right now, the tariff for goods from China can go as high as 25%, depending on the type of item. Because of USMCA, there are no tariffs importing goods from Mexico & Canada.

Here’s Why Mexico’s Better

NovaLink understands that manufacturers don’t want to cut costs, so we offer the solution of manufacturing in Mexico instead of China. Here are some benefits:

Shipping: As long as you have a good road and rail network, you can ship goods from Mexico to North America in less than a day.
Wage Stability: Mexico’s wages are some of the most stable in the world; this makes investing in nearshore manufacturing very attractive to companies. In similar fashion, China’s factory wages have grown dramatically over the past 8 years, with some regions seeing increases of up to 20% per year.
Advantages of the USMCA: When tariffs are lowered or eliminated, it decreases production costs and trade costs, which means lower prices for consumers and better profits for companies.

China Manufacturing Deception: Don’t fall for it unless you don’t care about quality, cost-effective labor, proximity and trade policy. Find out how to move your manufacturing out of China with a free consultation from NovaLink today.

China First: Wrong Reasons for the Decline of American Manufacturing

NovaAdmin · March 1, 2022 ·

Editor’s note: The following is an updated version of an article published on the Shoreview Management Advisors website in January 2019.

Trade Deficits and the Potential of Manufacturing Returning to the US Dominate Today’s Headlines

Structural trade deficits are driving the headlines. With “America First” as the justification, the US has imposed steel and aluminum tariffs, and most recently tariffs on potentially $250 billion or even all imports from China. Having built large sourcing infrastructures in China for US marketers and distributors, there are good reasons for the shift in some products from the US to lower cost countries like China. There are also American executives who have moved production from the US to China for other reasons including not clearly understanding their cost structures before and after an anticipated move. There are still other executives who have routinely engaged in this effort intentionally due to less than honorable reasons.

Compelling Reasons to Have Sourced Products From China

The allure of lower labor costs has been the primary reason to source products in China. While it is a compelling reason, it is not the sole reason for the massive relocation of manufacturing to China. This pursuit of substantially lower labor cost or low-cost country manufacturing is continuing and resulting in the movement of products from China to other countries such as Vietnam and Mexico.

The second major historical reason was the access to lower cost raw materials. This while true is less clear as to why that could have been true. The US has much greater availability of most raw material sources. In some cases, the US has been the source of discounted raw materials in foreign countries when US demand was insufficient to absorb domestic capacity at a high level. In those cases, some US industrial companies heavily discounted prices to China so as not to upset US market pricing. While understandable, it has also increased the cost differential between US companies and Chinese companies on a finished product manufacturing basis.

An example is that the price of steel in the US, which is substantially higher than China. In the early days, this was partially because excess steel was sold into China at deep discounts to keep the US factories operating. Today, it is more because China has a much lower cost of steel manufacturing for various reasons including potential government subsidies and large capacity increases. The net effect of US steel tariffs is that the domestic producers raise US prices, China costs remain the same, and US companies that convert steel to finished products now have a higher product cost, making the difference with China on similar products much greater and these companies becoming less competitive. This leads to even more products being sourced from China.

Ease of Doing Business Leading to Complacency Over Time

Over time, factories in China have developed a network of sources for raw materials, components, and services that have made it easier to source from China instead of other countries such as the US and Mexico. More specifically, in sourcing a product from Mexico or the US, the marketer/distributor must develop the sources for the raw materials that the primary factory requires for manufacturing. In China, this is typically accomplished by the factory, which makes the whole sourcing function much simpler for the US company.

Frequently Asked Questions: How Many Days Does it Take to Begin Operations in China?

If you are lucky and are able to quickly get through the red tape associated with starting operations in Communist China, the average amount of time is 33 days. In Mexico, with the aid of NovaLink’s services, you may be up and running in as little as 6 days.

Since this area has been greatly simplified by a Chinese agent, there has been a reduction in the staff resources that were required previously in the US. Rather than staying aggressive and challenging their supply chain, many companies have become overly reliant on Chinese resources. Hence, nearly any move to China resulted in a lower cost than manufacturing in the US. However, due to the hollowing out of US staff resources, companies may no longer be reaching the best deal as compared to other Chinese, or Vietnamese, or Mexican factories. Nor do they have the resources to periodically review their supply chains. The result is manufacturing that could be less expensive if performed in the US or other countries does not return, even if it might be at lower cost, due to the lack of strategic review due to understaffing and lower skill sets.

Some Tragic Reasons Why Manufacturing Shifted to China

The ethics of business in China and the US are sometimes very different. We read on a frequent basis about high level government executives being investigated for corruption. This is not confined to the Chinese alone. Many US executives have received personal financial inducements to source their company’s components or products from China. It is widespread in China and far more common than one would like to believe.

The second major inducement is that goods and services are inexpensive in China. For those American executives with low personal morals the widespread practice of women to exploit their weaknesses is also rampant. Since the loyalty in China is more to the US dollar and the prevailing wage is considerably lower than the US, these services are frequently offered by Chinese executives to win favor and possibly leverage the indiscretion against the US executive in negotiations.

These inducements are frequently offered by Chinese factory owners and unfortunately too many US executives have succumbed to enrich themselves to the detriment of their shareholders and factory teammates who deserved better and fairer competition. To me, it is abhorrent, that for personal gain, many American workers were forced into unemployment because of compromised executives.

Still Other Reasons Why Some Executives Have Been Seduced by the Allure of China

Naiveté of the executive and lack of understanding the firm’s cost structure is another less than stellar reason why some products were outsourced to China. In this case, poor make vs buy studies were done which considered only the variable costs of purchasing from China versus manufacturing in the US. What these executives failed to consider was that fixed costs are just that. Of course, one can write down plants and equipment and take the one-time adjustment to earnings and avoid the recurring fixed costs on the income statement. However, which CEO, CFO, or Operations leader volunteered to reduce his or her contribution to fixed cost by reducing their individual compensation commensurately. Fixed costs for assets should be considered as sunk costs. That is not to say, that they should not be considered as part of a future investment decision from a financing standpoint, but they are not ongoing costs per se. The variable costs of operating a factory such as utilities should be considered in the analysis, but not depreciation or lease cost which is more of a financing of the original asset than an ongoing cost that should be assigned to a product based on direct labor content of a product. Of course, in a business, over the long run all costs are variable, as in that one can choose to close the business and eliminate the entire cost of doing business. The problem is that when the decision is made to outsource, rarely is there a complete strategic review of the business including the subsequent impact on product costs if the fixed cost structure is not radically addressed in the same way.

Not only is the above treatment of fixed costs generally true, the analysis of the variable cost of importing is generally insufficient. It rarely includes the cost of the additional inventory for the 30-45 days of manufacturing lead time in China (vs the 2 weeks or so in the US) and the cost of inventory for the 25 to 30 days for transit across the Pacific Ocean and the time from port to distribution center. Nor is there consideration for the potential of air freight if there is a demanding customer or a quality issue when the product arrives. It is likely that the analysis did not build in the overhead costs of travel to and from China.

Then there are the intangible costs such as the theft of intellectual property which is one of the underlying causes of the current tariff situation.

The other issue is that many companies jump on to the bandwagon of the latest management philosophy, in this case outsourcing. Shareholders are expecting results, and outsourcing is a convenient way of pleasing them, even if the underlying business does not materially improve. Share prices increased many times as an announcement was made about restructuring or outsourcing. My contention is that these decisions should be made on a recurring basis and if a CEO must make a major announcement (other than when first hired) about either of these, then he and his team have not been performing their job on a regular basis.

Quo Vadis?

With the current situation of impending trade wars and the imposition of tariffs, for many companies there exists the opportunity to correct the past mistakes in previous make vs buy decisions. The gradual swell over the last few years in the consultant genre of Reshoring and the return of manufacturing to the United States may be somewhat overplayed, but the underlying rationale is very much true. Labor costs in China have increased nearly 280% over the last decade while increasing in the US only 36% (including benefits). The previous ratio of workers in China to the US was more than 12 to 1 and has now decreased to 4 to 1. While that is still a large difference, the reality is that in many products, direct labor is a relatively small portion of total costs. It is also my opinion that the average motivated US worker is far more productive than his or her Chinese counterpart both due to his or her inherent problem-solving abilities and greater automation. Considering removal of the ocean freight, normal tariffs, inventory reduction and other costs, the equation is much more balanced. If the product in China also contained a premium for poor negotiating tactics or outright graft and corruption, then there is a great probability that moving from China to another low-cost country like Vietnam or Mexico or even to the United States would be advantageous. These countries provide greater protection of intellectual property than China has. The persistent headlines provide convenient cover with investors and boards of directors for company executives to seriously re-evaluate their supply chains.

Beyond the headlines, companies should re-evaluate their supply chains and sourcing strategies every so often, perhaps every 5 to 8 years. Becoming complacent, creates opportunities for competitors. Re-sourcing, Near-Shoring, or On-Shoring are prudent strategies.

Written by Jeffrey Cartwright | CEO Shoreview Management Advisors

RETURNING to CONFIDENCE in QUALITY: SOURCING in MEXICO as the ALTERNATIVE to CHINA

NovaAdmin · February 9, 2022 ·

Editor’s note: The following is an updated version of an article published on the Shoreview Management Advisors website in June 2020. The relevancy of these issues continues to increase. As executives consider the best way to strengthen their strategic sourcing strategy, we highly recommend they consider Mexico due to the inherent relationship capital between the two countries, ease of doing business, and insured high product quality they can rely on.

PRODUCT QUALITY FROM CHINA IS CHARACTERIZED BY “BUYER BEWARE”

China became the factory of the world because of its tremendous advantage in low-cost labor. This was complemented in previous decades by many US industrial companies providing raw materials at a lower cost to China than to the US so as not to upset pricing in the US. Adding to this, heavy subsidies by the Chinese government made it difficult for many manufacturing companies in the US and Mexico to survive. To maintain profitability, there was a wave of resourcing of products to China and closures of inefficient factories throughout North America.

The move to inexpensive product always has unintended consequences. In many cases, product quality has suffered. This article is not about the inherent design quality, which is a choice of the marketing or product design company. That is understood and a known tradeoff of features, materials, and aesthetic quality relative to price. This is about the failure of many firms in China to adhere to standards.

From time to time, the media has published articles concerning spectacular failures of quality in China. There was the 2008 baby formula issue with melamine being used as a filler, affecting 300,000 victims and hospitalizing 54,000 babies, the 2019 recall of generic blood pressure pills that originated in China, and reports of faulty masks imported by Spain in April. For those of us who have imported from China, we know that there is a certain “buyer beware” attitude present at many factories.

Foreign brands are routinely preferred by Chinese consumers over Chinese brands. According to a 2018 Forbes article, consumers there increasingly demand safe, trusted brands.

CHRONIC CAUSES OF QUALITY ISSUES

Despite the quality control that factories exercise, major importers insist on independent, certified third-party laboratory tests and inspections to ensure quality. All the major retailers require this of products shipped to them directly from China. That should make us feel more secure, but many manufacturers do not submit random samples, and there have been numerous instances of inspectors passing sub-standard product in exchange for monetary consideration. According to a 2015 study by Charney Research, 36% of Chinese manufacturing companies pay bribes.

Quality issues sometimes occur because of the creativity of the Chinese in attempting to solve a cost problem. When faced with a cost issue and a customer who is unwilling to accept a price increase, all companies look for ways to reduce costs. Unfortunately, many Chinese firms will substitute materials of lower quality or of questionable quality without informing the customer and hope that the change is not discovered by the customer. In one instance, we were able to witness how one Chinese manufacturer failed to renew their product UL certification and did not provide timely notice to the client. This was later discovered through a Supplier Quality audit, and a very expensive field recall campaign had to be deployed in order to replace non-certified product from the shelves. Since they do not always understand the downstream impact of these unauthorized substitutions on product performance, they believe the change is perfectly acceptable. This is understandable as they view themselves as manufacturing experts and may lack the marketing and scientific research that has gone into developing the right formulation that provides the defined performance for US customers. My company has been adversely affected several times by product recalls because of this overconfident attitude. Even though there are specific agreements in place to notify and test with the US partner, they feel that the US partner will actually celebrate their solution to the cost problem.

Many factories in China have become vertically integrated. This happens for several reasons. First, to capture more of the value of the supply chain and thus increase profits. Second, a lack of trust in the component suppliers that results from the attitude that the factory that is insourcing these components is stronger in technical and manufacturing capabilities. The first of these reasons is valid. The second has a large risk associated with starting up an operation in which the management team has little expertise. Since all startups have a learning curve, more quality issues can occur during this initial period, and if the company truly does not have the skills and expertise, this can result in lower quality for years. The issue for the US customer is not that this is occurring, it is that this is often done without the customer being involved in the approval and certification process of this change.

Frequently Asked Questions: Are Chinese Facilities and Labor Cheaper than Mexico?

In 2000, workers in Mexico’s manufacturing sector earned nearly 60% more than their Chinese counterparts, according to the Boston Consulting Group. Now they earn 11% less.

Facilities in China have become so expensive that in 2015 a Chinese Business Group opened an industrial park in Mexico rather than their own country.

QUALITY IN MEXICO

The Mexican manufacturing culture is closely aligned with the US. The integration of the US and Mexico since the implementation of NAFTA has been hugely successful particularly in the automotive, aerospace, appliance, consumer electronics (e.g. TVs), and medical device sectors. Since all five of these sectors are highly regulated in the US, deviations from design are not tolerated in either the US or Mexico. Additionally, the engineering and technical universities in Mexico have strong degree programs with great emphasis on manufacturing disciplines including quality systems. As such, performance to specification is ingrained throughout the Mexican manufacturing culture.

The reaction of Mexican factories to receiving substandard components or materials is typically to stop operations and consult with the customer (i.e. Zero Defects culture). There is no “buyer beware” attitude. There are quality issues, for certain, but prompt and full disclosure is normal. There is also the added convenience of being able to travel to Mexico and back in two days to personally observe the issues and to problem solve in the immediate term.

For those companies which require third-party certifications, these are readily available throughout Mexico and include the same independent laboratories employed in China; ISO is heavily employed throughout Mexico.

In short, customers can rely on Mexican manufacturers to produce high-quality products consistent with their expectations. In China, remember Ronald Reagan, “Trust but Verify.”

SHOREVIEW MANAGEMENT ADVISORS AND THE MEXICO STRATEGIC SOURCING ALLIANCE

Having built multi-billion-dollar supply chains in China and having built and operated manufacturing plants in Mexico for major US marketing and distribution companies, Shoreview Management Advisors and our strategic partners bring unique capabilities in Asian sourcing and logistics including ocean freight, customs, overland transportation, and 3PL distribution. We are uniquely positioned to bridge this cultural divide and close the gap in capabilities and execution.

We have assembled a strategic alliance of companies that provides an engineering-based approach to strategic sourcing and has 20 plus years of transferring products competitively to Mexico.
Through Quality Function Deployment (QFD), we develop a thorough understanding of the material specifications and required performance of the product with our clients. If required, we will assist the factory with qualifications and introduce the client companies to the independent, third-party testing laboratories in Mexico.
We perform category-based, multi-tiered supplier market research in Mexico to add to our list of highly qualified manufacturers (a.k.a. “Approved Vendor Lists” or “AVLs”). If necessary, we will reverse engineer the detailed product design from samples and create detailed bills of materials (BOMs).
Our Cost Engineers work with Mexican manufacturing companies in multiple ways to reduce their client costs and achieve competitive pricing. As part of this, the Alliance can provide a full analysis of the Total Delivered Cost, as well as an analysis on the reduction in working capital as a result of being closer to the factory. If necessary, we globally source components from Asia and import them into Mexico as part of the total supply chain.
We can handle customs and duties, as well as delivery of product to the customer warehouse in the United States. In short, we provide a complete turn-key sourcing alternative to China that nearly always results in a lower delivered cost to your distribution centers.

If you are interested in making the move from China to Mexico, contact us today to learn more about our expertise, and how we can help you make the decision that is best for your bottom line.

Shoreview Management Advisors is a trusted advisor to a variety of businesses in the consumer products and industrial products industries.