nearshore

Starting Nearshore Manufacturing: Expectations vs. Reality

NovaAdmin · November 14, 2018 ·

Note: This post was originally published in November 2018 and has been completely revamped and updated for accuracy and comprehensiveness.

Mexico has long been one of the most convenient and popular destinations for businesses looking to begin manufacturing in a nearshore, low-cost environment. However, nearshore manufacturing is not without risk.

We at NovaLink believe that manufacturing in Mexico is the most strategic and cost-effective choice for outsourcing manufacturing – if you know what nearshore manufacturing in Mexico means.

Source: Consultancy Eu: European companies increasingly moving to reshore Asia production

This article will explain the differences between expectations and reality in many scenarios of full service manufacturing offerings in Mexico. Here are several factors to consider that may be connected to expectations that you might currently have:

Expectation: I don’t have a prototype product, but my company can make one for me.
Reality: It is common practice for a company considering outsourcing their manufacturing to have a prototype made before engaging a manufacturing services provider. Mexico does not typically have the required infrastructure to deliver prototypes before bringing production to fruition unless another company makes a similar product in the country.

Companies seeking to engage with a Mexican manufacturer for production should have their prototype made in the US.

NovaLink does not produce spec products. However, aside from the obvious legal and related trade issues, our company believes that having the functional product specifications and a product our staff can reverse engineer helps rapidly advance the product’s time to enter production.

If a company needs a specification product completed, there are numerous resources available.

Expectation: I can run at a low volume or do a short run production.
Reality: The very nature of having a nearshore manufacturing partner such as Novalink requires a consistent production flow. Companies seeking to engage with Novalink can do a short-run or limited product run as long as they have plans to continue to make the same short-run in the future. The cost of producing the item and sourcing the labor would be too expensive for Novalink to undertake such an effort as a project. Even if Novalink accomplished this, the final cost to produce the good would be cost ineffective. In short, self-produced or outsourced manufacturing should have a steady, consistent volume and require at least 15 or more employees to produce for it to be cost-effective to engage with Novalink in Mexico.

If your product does not fit these guidelines, it makes more sense to have a contract manufacturer produce it for you.

Source: Brigham Young University: Econ 150.

Expectation: I don’t need a lot of money to get started.
Reality: If you are a company is a startup operation, it must have total funding from an investor for your Mexico project. Novalink is not equipped to work with startups without the requisite funding. In addition, providing manufacturing space, equipment, and labor will require funding for a project to start in Mexico with Novalink.

Jason Wolfe, NovaLink CEO, asserts, “There will always be a need for capital when starting up an outsourced manufacturing project in Mexico or relocating an existing one. However, with NovaLink, we have the infrastructure in place. We also provide the ability for a company to start small and grow into a larger footprint to meet its changing needs. This means that companies with whom we partner absorb the overhead proportional to the space and employee level required.

Furthermore, NovaLink saves its customers upfront investment in that the client does not need to incorporate in Mexico or hire legal experts to negotiate union contracts and acquire permits. We already have this in place. NovaLink is also positioned to assist manufacturers with capital investment if required.”

Expectation: I have an idea and I want my company help me get it to reality.
Reality: All manufacturing companies would love to be a part of the next big thing! However, getting a product from concept to reality will require much footwork on the client’s part beforehand.

As a standard, before approaching any nearshore manufacturing partner, a company should have a firm grasp of what the product will look like and work up a general cost estimate for production (with engineering specifications). Companies should also consider how many people it will take to manufacture the item and what kind of equipment will be needed to do the job.

Source: Research Gate: Manufacturing Cost Analysis

After this, companies should have a prototype of their product made so that engineers, like the ones employed by NovaLink, can examine it and understand it completely. This may be a somewhat daunting exercise, but it is a necessary one. Sufficient forethought and work done during the conceptualization stage will help ensure that the product’s manufacturing is done correctly and that the project, as a whole, is a success.

Expectation: I have no equipment to begin manufacturing.
Reality: Nearshore manufacturing partners such as NovaLink will assist their customers in obtaining equipment for their production if they do not have the necessary machinery. However, finding and sourcing the equipment is very time-consuming (as well as finding the labor to run the equipment and will delay the beginning of production. Prospective customers may wish to consult with a company like NovaLink beforehand to understand better the equipment they may need and its cost. The options option of finding the equipment for itself will help to shorten the timeline and get production off the ground more rapidly.

Expectation: I will need a large labor pool.
Reality: This depends on the product that a company seeks to produce. A simple product may only require five employees to manufacture. While on the other hand, a larger, more complex product that requires more machinery, or a product that needs to be assembled, will require more labor.

Cut and sew products, especially ones with multiple pieces that need to be created and assembled, like a handbag or a complex garment, tend to be very labor-intensive. However, some products require simple assembly and can be produced in a single unit may require less labor. The best way to determine if a product will need a large labor pool to produce is to have a specification/demo made and have Novalink’s engineers examine it. Then, the company’s manufacturing experts can determine if the product will need a large assembly in Mexico team to make it.

Expectation: There will be a lot of government red tape.
Reality: Any large manufacturing project, whether in the United States or Mexico, will require you to navigate through the regulations associated with that country – that is an inevitable reality. However, it does not have to be a bureaucratic nightmare that will stop your project in its tracks. There are experts in nearshore manufacturing companies like NovaLink that can help you pilot your way through the required regulations, forms, and inspections.

In addition, as mentioned previously, the more legwork committed on the front end of your project, the easier it will be for you to anticipate what is required from the bureaucracy of your country of origin, like Mexico, to allow you to budget time and plan for these contingencies.
Expectation: It will take a long time.

Expectation: It will take a long time.
Reality: Here is where you may be welcomed with a pleasant surprise: if you have done your due diligence and planning for your project thoroughly, your time to getting started may be much shorter than you anticipate: At NovaLink, typically set up under our model is quick; within a month. This is dependent on many variables, however, your planning will aid in being prepared for these variables in order to move things rapidly along. The belief that a manufacturing project will take over a year to get started is simply false.

Knowing where to begin is the most important hurdle of any large business project; understanding the realities of starting a manufacturing business in Mexico and planning for complications will make your transition from concept to reality a smooth one.

If you are interested in beginning a manufacturing project and would like to partner with NovaLink, please contact us today: 956-621-7362.

Nearshore, Offshore and Onshore: What’s the Difference?

NovaAdmin · June 21, 2018 ·

When seeking to meet operational costs and offset expenses associated with their manufacturing, companies may look for opportunities to re-distribute portions, or even their entire operations, to a 3rd party partner such as Novalink. The options companies have to choose for outsourcing are plentiful and will typically fall under 3 popular resources: Nearshore, Offshore or Onshore.

The challenge then becomes: “what’s the difference?” and “which one is the best fit for my company?” We will explore the differences between Nearshore, Offshore and Onshore as well as examine the benefits and disadvantages of each option.

Nearshore

Nearshore is exactly as its name implies: a resource for your company operations in another country in close proximity to your own. Here in the United States, this of course means either a company in Canada, or a shelter company in Mexico, such as the facilities currently run by Novalink.

The benefits of a nearshore partner, aside from the obvious advantage of having your operations close to your business headquarters, are great:

Economical Labor: An economical, and often plentiful labor force at your disposal that is highly-skilled, such as the Maquiladora.
Similar culture and language skills of the host country to your own: This is especially true for shelter companies in Mexico that border Texas and California; Mexico, Texas and California share many common cultural experiences and traditions with the Latino community, as well as the English and Spanish language, of which both sides are commonly fluent.
Speed of Execution: The speed in which companies who opt for the nearshore option cannot be matched. Consulting firm Accenture recently purchased a Nearshore firm for this very reason: ““For today’s CMO, it’s all about greater speed to market, responsiveness and relevancy, said Brian Whipple, global managing director of Accenture Interactive.

Offshore

Offshore most commonly refers to outsourcing to another country for your manufacturing commitments, but unlike a shelter company in Mexico, the Offshore company does not border the country your company resides and is located across the ocean, most commonly in central Asia (such as China), or in southern Asia in such countries as India or Bangladesh.

There are certain benefits to outsourcing your manufacturing to another country as in Nearshoring, however, the location of Offshore companies often becomes a crucial factor in both speed to market and cost of production:

Similar to Nearshore, Offshore companies have access to skilled and inexpensive labor pools. Although it is commonly accepted the profits gained from the savings of an Offshore group is often offset by the quality of the goods received.
Some operational cost savings: Also as with Nearshoring, there will be opportunities for operational savings versus having a product produced in your own country, however, location of where the product is produced may eat into those profits.
According to Dr. David M. Anderson in his book Build-to-Order & Mass Customization : “Manufacturing offshore for sale in the U.S. rarely results in a net cost savings, considering differences in labor efficiency and all the costs of shipping, quality, inventory, communications, travel, training, transferring products, support, and complete sets of equipment needed for any manufacture.”
Because of the large cultural and language differences with many Offshore partners, the need to have collaboration between your company and your Offshore partner can be difficult.
According to Chron,this creates a hurdle for collaboration between home offices and their offshore partners: “The many U.S. and global dialects of English can create “What’d you say?” moments between people who — in theory — should understand one another. Accents can make English speakers from different parts of the world strain to decipher each other’s speech. More confoundingly, non-native speakers may slip into the sentence structure of their native language. Without an understanding of the colloquial speech and slang that can dominate exchanges between colleagues, misunderstandings can occur”.

Onshore

Onshore is the newest catch-phrase for what most businesses think of when they consider outsourcing: working with a company within your own country, often close to your company’s operation or having the labor force come directly to you. There are several obvious benefits and challenges to this:

Labor costs can be reduced somewhat, but not nearly as such if you choose a Nearshore, Offshore outsourcing option. You can also save on tariff costs and import duties by having your product in your own country, and the logistics for moving your product to market are reduced.
There are no cultural or language barriers to overcome; this allows for better communication and collaboration and less risk of misunderstands due to language (or distance).
Your time-to-market may be reduced as well, although this is dependant on where your Onshore partner is located in proximity to your company. If your partner is across the country from you, your freight and shipping costs may be as much (or more) than using a Nearshore option.

The benefit of choosing the option for your outsourcing really comes down to 2 factors: execution and cost. While factors such as language and labor skill are important, they are not nearly as important as being able to reduce the cost of your product (through labor or production) and the ability to get your product to your market in the most efficient manner possible. These choices made by the business considering outsourcing options may be driven by the needs and goals of their company and the product they are producing, but often, cost-savings often speaks the loudest.

The Biggest Lie Circulating in the Nearshore Industry, and How to Overcome It

NovaAdmin · November 3, 2017 ·

What’s the one thing that most Nearshore professionals get wrong on a routine basis?

Before revealing the answer, let’s take a step back and assess how one determines when a market has reached ‘saturation’. This is a word that has been thrown around to describe hot BPO markets like Nicaragua, Jamaica, Colombia, and even certain cities in Mexico.

But what is the science behind these claims, and who exactly do we trust when determining whether a market is no longer ideal for expanding current operations or establishing Greenfield centers?

Therein exists what we consider to be the biggest lie reverberating from board rooms in North America to delivery centers in the Nearshore: the freely applied myth that not enough professionals are available in any given market to meet current demand.

Read the Article

Despite International Entrepreneur Setbacks, Nearshore Businesses Forge Ahead on US Soil

NovaAdmin · September 27, 2017 ·

Foreign entrepreneurs and startups with designs on the US took a hit recently with Trump’s postponement of Obama’s International Entrepreneur Rule, which was set to go into effect on July 17, 2017.

Now, with the rule’s effective date set back until March 14, 2018, and noise about rescinding the rule entirely, the impact on entrepreneurs is one of uncertainty, as they deliberate over whether or not to enter the US and how to do it.

On the other hand, according to Gabriela Smith, a corporate attorney in Texas with numerous Nearshore clients, Nearshore businesses that already have presence on US soil are reporting business as usual, save for a few adjustments in local hiring practices.

Read the article