How to attract foreign suppliers to Mexico

1. Join the manufacturing
By Xavier Hurtado
Mexico’s Manufacturing Facilitator
facilitator@AmericanIndustriesGroup.com
www.SupplyChainInMexico.com
Supply Chain in Mexico

2. About American Industries Group
American Industries Group is a
private Mexican company that has
helped over 200 global companies
(OEMs and suppliers) to
successfully establish and run
manufacturing operations
throughout Mexico since 1976
through Site Selection,
Administrative “Shelter” services
and Industrial Real Estate.

3. Our Locations & Score Card
Shelter & Start-up Services Real Estate
• 50 Customers.
• Over 8,500 Customer’s headcount
• Over 30,000 trouble-free import
and export transactions per year.
• We built a 12 M Sq. Ft. Portfolio.
• Full Mexican Market Coverage
• 9 Industrial Parks
• 90 Buildings
• 89 Customers

4. What we’ll cover today:
• 10 Reasons to Manufacture in Mexico as part of the global supply chain
• Location of manufacturing industrial clusters in Mexico: finding your
customers
• 5 Steps to do Site Selection in Mexico
• 5 ways to start up your manufacturing supply chain operations in Mexico
• 1 Step to get a Free Cost Model simulation for your supplier operation in
Mexico

5. 10 REASONS TO MANUFACTURE IN MEXICO AS PART
OF THE GLOBAL SUPPLY CHAIN
Leveraging Mexico’s advantages for your profitability

6. 10 Reasons to Manufacture in Mexico
as part of the global supply chain
1. Immediate access to the manufacturing industry in
Mexico and the US market.
2. Immediate re-manufacturing turnaround.
3. Skilled labor: up to 80% in savings with manufacturing,
assembly, engineering & Design capabilities (Catia 5)
4. Technical training support: Schools, R&D and training
centers.
5. Quality culture: ISO 9000, AS 9000, NADCAP.
6. Solid Manufacturing Clusters & Supply Chains: more than
3,000 foreign companies doing business in Mexico.
7. Tariffs savings: free Trade Agreements with 44 countries
8. Legal certainty for Intellectual Property
9. Tax incentives: No VAT and NO Income Tax under the
Shelter Programs for the first 4 years of operations.
10.Developed “Soft-landing” culture to help manufacturers
start up operations in Mexico in a fast-track, risk-free
shelter programs.

7. Bombardier Success Story
• Bombardier opened its new plant
in Querétaro Aerospace Park, with
an investment of 255.9 million
USD. This project will generate
approximately 1,105 direct jobs.
• The Learjet 85 is a project
surrounded by technological
innovation, the use of new
compound materials for the
production of structures such as
the fuselage, wings, control
surfaces, among other pieces, will
facilitate the creation of a
completely different airplane from
the current Learjet models.
The production of the first
Learjet 85 prototype is an
achievement for the Mexican
aerospace sector.

8. Myth: Everything in Mexico will
be inexpensive
Facts:
• Labor will be very inexpensive –
up to 80% in savings compared to
certain locations in North
America.
• Utilities, logistics, real estate
leasing and utilities will be about
the same costs as in the US.

9. Myth: There is low quality in the
labor force in Mexico
Facts:
• The labor force in Mexico is trained to
meet international quality standards
at technical training centers or at
their own academic institutions.
• Manufacturing plants have gotten their
certifications in ISO 9000, NADCAP, AS
9000 and other certifications on their
first attempt.
• There are some plants with Engineers
in process of getting manufacturing
patents of processes that they
optimized.

10. Aerospace manufacturing
quality in Mexico
Mexico is one of the few countries
that has entered into a bilateral
agreement for the mutual
recognition of aeronautical
certification - BASA (Bilateral
Aviation Safety Agreement) with
the U.S. Federal Aviation
Administration (FAA), while
companies operating in Mexico have
certified their procedures in keeping
with industry standards, such as ISO
– 9001, AS 9100, and NADCAP
(National Aerospace and Defense
Contractors Accreditation Program).
Mexico offers you the Available,
Skilled and Affordable Talent you
need for your Aerospace
Manufacturing operation

11. Myth: Security in Mexico is a
threat to manufacturers
Facts:
• Manufacturers have not
been threatened since they
do not handle cash in their
day-to-day operations.
• Manufacturers already
established in Mexico have
not left the country, but
they have expanded or plan
to expand their operations
in Mexico.

12. LOCATION OF MANUFACTURING INDUSTRIAL CLUSTERS
IN MEXICO: FINDING YOUR CUSTOMERS
Where are your current or potential customers in Mexico?

13. Mexico reported 232
aerospace companies that
employed more than
30,000 workers in 2010,
and primarily serve the US,
Canadian, German and
French markets
Source: Aerostrategy
Mexico – Global leader in aerospace
manufacturing investment attraction

14. Aerospace Industry in Mexico

15. Aerospace Clusters and
Supply Chain Integration

16. Beechcraft
Beechcraft operates 3 plants in the state
of Chihuahua that are focused on
medium & major aircraft subassemblies,
fuselage subassemblies, sheet metal
forming & cutting, extrusion machining,
hidroforming, heat treatment, water
& glicol and wire harnessing.
This is a success story in Mexico with
over 460,000 sq ft of industrial floor and
over 900 employees that has been
integrating its supply chain in the region
with different key manufacturers and
service providers, including special
processes.

17. Mexico took the 8th place among the top 40 Vehicle producers on a global level!
International Organization of Motor Vehicle Manufacturers (OICA)
Mexico’s Light Vehicles Exports
Mexico is the #1 Autopart supplier for the US
Automotive Industry
Numbers & Trends

18. Automotive OEMs in Mexico

19. Automotive Clusters and
Supply Chain Integration

20. Veyance – Success story
Veyance has 2 manufacturing plants in
Chihuahua, Mexico, serving the
international heavy truck industry.
They have a complex process that has
been certified by ISO9000 from the very
first attempt in all their plants.
They human resources team has always
been skilled and stable: no strikes in more
than 16 years.
They have successfully integrated their
local supply base for tooling and required
services.

21. Medical Devices Industry in Mexico

22. Other Industries that have
grown in Mexico:
From OEMs and assembly operators to Tiers 3
• Appliances
• Engineering Design
• Electronic
• Food
• Heavy industry
• Metal Mechanical
• Multimedia
• Petrochemical & plastics
• Pharmaceutical
• Software
• Textile

23. Mexico is the most cost effective
location for US companies as far as
labor and freight
2011 US Manufacturing-Outsourcing Cost Index

24. 5 STEPS TO DO SITE SELECTION IN MEXICO
Elements to consider to find the most cost-effective location

25. Site Selection Process
Selected Site
Due Dilligence
Specific Site Selcetion
Site Rough Cut Cost Analylsis Evaluation Matrix Final Site Selection
Regional Site Selection
Cities Rough Cut Cost Analysis Evaluation Matrix Final City Selection
Understanding the Project
Project Scope Company Objective Corporate Criteria

26. Understanding the Project
• Project Scope: What?
– Product, Facility Size, Volumes, Equipment, Headcount &
Skills, Utilities & Consumption, Raw Material(s), Supply Base,
Customer(s)...
• Company Objective: Why Mexico?
– Cost reduction, Proximity to Customer(s), Logistics,
Suppliers....
• Corporate Criteria
– Time Frame
– Buy or Lease
– Existing or BTS Facility
– Project Confidentiality / Company Exposure
– City Profile
• Border, interior, big, small.
– Expat Quality of life
– Outside or Inside Industrial Park
– Curb Appeal

27. “Information IS NOT
Knowledge”
- Albert Einstein

28. Key Factors to consider for Regional
& Specific Site Selection:
 Business Environment
 Labor
 Demographics
 Academic Infrastructure
 Quality of Life
 Political Environment
 Geography & Climate
 Accessibility
 Supply Base
 Infrastructure

29.  Business Environment
• Labor
• Demographics
• Academic
Infrastructure
• Quality of Life
• Political Environment
• Geography & Climate
• Accessibility
• Supply Base
• Infrastructure
• Turnover Rate
• Absenteeism
• Labor Environment
• Unemployment Rate*
• Labor Availability
• Labor Culture / Vocation
• Union Presence
• Established Companies &
Competitors
Key Factors to consider for Regional
& Specific Site Selection:

30. • Business Environment
 Labor
• Demographics
• Academic
Infrastructure
• Quality of Life
• Political Environment
• Geography & Climate
• Accessibility
• Supply Base
• Infrastructure
• Availability
• Skills
• Fully Loaded Cost
Key Factors to consider for Regional
& Specific Site Selection:

31. • Business Environment
• Labor
 Demographics
• Academic
Infrastructure
• Quality of Life
• Political Environment
• Geography & Climate
• Accessibility
• Supply Base
• Infrastructure
• Population
• Total
• Economically Active
• Average Age
• People Entering the Workforce
Key Factors to consider for Regional
& Specific Site Selection:

32. • Business Environment
• Labor
• Demographics
 Academic
Infrastructure
• Quality of Life
• Political Environment
• Geography & Climate
• Accessibility
• Supply Base
• Infrastructure
• Universities
• Community Colleges
• Technical Schools
• Training Centers
• Research Centers
Key Factors to consider for Regional &
Specific Site Selection:

33. • Business Environment
• Labor
• Demographics
• Academic
Infrastructure
 Quality of Life
• Political Environment
• Geography & Climate
• Accessibility
• Supply Base
• Infrastructure
• Residential Areas
• Country Clubs
• Lodging
• Restaurants
• Hospitals
• Shopping Malls
• Convention Centers
• Cultural / Sport Activities
• Financial Services
• Bilingual Schools & Universities
• Expat Community
Key Factors to consider for Regional &
Specific Site Selection:

34. • Business Environment
• Labor
• Demographics
• Academic
Infrastructure
• Quality of Life
 Political Environment
• Geography & Climate
• Accessibility
• Supply Base
• Infrastructure
• Attitude towards business
• Incentives
• Political party in power
Key Factors to consider for Regional &
Specific Site Selection:

35. • Business Environment
• Labor
• Demographics
• Academic
Infrastructure
• Quality of Life
• Political Environment
 Geography & Climate
• Accessibility
• Supply Base
• Infrastructure
• Topography
• Temperature
• Humidity
• Prevailing Winds
• Rainfall
• Elevation
Key Factors to consider for Regional &
Specific Site Selection:

36. • Business Environment
• Labor
• Demographics
• Academic
Infrastructure
• Quality of Life
• Political Environment
• Geography & Climate
 Accessibility
• Supply Base
• Infrastructure
• Airports
• Commercial / Cargo
• Domestic / international
flight’s frequency
• Main roads connections
• Railroad connections
• Distance to other cities
• Distance to the port of entry
• Parcel services
• Freight services
• Freight costs
• Air
• Land
• Rail
• Sea
Key Factors to consider for Regional
& Specific Site Selection:

37. • Business Environment
• Labor
• Demographics
• Academic
Infrastructure
• Quality of Life
• Political Environment
• Geography & Climate
• Accessibility
 Supply Base
• Infrastructure
• Services
• Maintenance
• Special processes
• Heat treatment
• CNC Machining
• Chemical
• Tool & Die Casting
• Injection Molding
• NDT
• Other
• Metrology
• Laboratory
• Raw Materials.
Key Factors to consider for Regional
& Specific Site Selection:

38. • Business Environment
• Labor
• Demographics
• Academic
Infrastructure
• Quality of Life
• Political Environment
• Geography & Climate
• Accessibility
• Supply Base
 Infrastructure
• Industrial Parks
• Location
• Available Buildings
• Available Land
• Building Lease Rate
• Land Prices
• Rail Spur
• Utilities
• Water
• Potable
• Treated
• Sewage
• Electricity
• Tension (Low, High, Mid)
• Natural Gas
• Telecommunications
• Copper, Fiber, Wireless
Key Factors to consider for Regional
& Specific Site Selection:

39. Cost Analysis
For both the Regional & Specific Site Analysis, operating
cost scenarios must be determined by considering the
following:
+ Labor
+ Process Utilities
+ Freight, Customs & Logistics
+ Building (Lease Rate, Triple Net, Utilities, CAM Fees)
+ Administrative
= Monthly Operating Cost & Fully Burdened Cost/hr

40. Evaluation Matrix
City / Site / Building
Option A Option B Option C
Key Factors
 Company defines priorities & weights of the
factors to be considered

41. Due Diligence
 Zoning
 Ownership
 Utilities Feasibility
 Water
 Sewage
 Electricity
 Natural Gas
 Permits & Registrations
 Easements
 Site Studies
 Soil Mechanics
 Topographic
 Environmental Studies
 Phase One
 Phase Two
After selecting a site, a due diligence process is
required:
You can by-pass this process when you lease
your facility with American Industries Group.

42. Local Knowledge is Key to :
 Obtain up-to-date & detailed information
 Clearly differentiate pros and cons of the available
options
 Avoid unnecessary problems & costly mistakes before
and after the operation.

43. 5 Business models to start
manufacturing operations in Mexico
Different ways to leverage Mexico’s advantages for your operations

44. 5 Business models
• Finding a Joint
Venture Partner
• Acquiring an existing
operation
• Starting up with a
Stand Alone
operation
• Contract
Manufacturing
• Starting up with a
Shelter Program

45. 5 Business models
 Finding a Joint
Venture Partner
• Acquiring an existing
operation
• Starting up with a
Stand Alone
operation
• Contract
Manufacturing
• Starting up with a
Shelter Program
– They might be experts to do business in Mexico
– They might speed up the start up process due
to local networking
– They might be well connected to help you
import & export
– You do not have full control of your operation
– You have the risk of losing your intellectual
property
– You will face liabilities in Mexico in case of any
mistakes or problems with the operations

46. 5 Business models
• Finding a Joint
Venture Partner
 Acquiring an
existing operation
• Starting up with a
Stand Alone
operation
• Contract
Manufacturing
• Starting up with a
Shelter Program
– Employees will already have the
needed training for your process
– Legal and operational permits
might already be compliant
– High entrance cost
– You will be responsible for all
the previous and ongoing legal and
operational liabilities

47. 5 Business models
• Finding a Joint
Venture Partner
• Acquiring an existing
operation
 Starting up with a
Stand Alone
operation
• Contract
Manufacturing
• Starting up with a
Shelter Program
– You will have full control of your
operation
– High entrance cost
– High and costly learning curve
– Lack of local networking
– High risk and liabilities for all
legal, labor, fiscal and customs
start-up and operational permits
(functions that are not your core
business)

48. 5 Business models
• Finding a Joint
Venture Partner
• Acquiring an existing
operation
• Starting up with a
Stand Alone
operation
 Contract
Manufacturing
• Starting up with a
Shelter Program
– You will never have control
of your production
– You risk your intellectual
property

49. 5 Business models
• Finding a Joint
Venture Partner
• Acquiring an existing
operation
• Starting up with a
Stand Alone
operation
• Contract
Manufacturing
 Starting up with a
Shelter Program
– You will have immediate access
to the local networking and know-
how to do business in Mexico
– You have full control of your
operation
– You can start up in less than 9
weeks
– You can choose to not have a
legal entity in Mexico
– No liabilities in Mexico: labor,
fiscal, legal and other operational
permits

50.  Incorporated
Operations are performed under clients’ Mexican Legal Entity.
This requires a more robust organization and income tax obligations.
Recommended only if you are required to invoice your customers in
Mexican Pesos
 Not Incorporated
Operations are performed under American Industries’ Mexican Legal Entity. It
simplifies the compliance with Mexican regulations, translating into
important cost savings.
You will be exempt from income tax if you do not incorporate in Mexico.
American Industries is able to offer the same scope of services in either
framework. Sales in Mexico can be done in both scenarios.
Legal Entity’s Working Framework
Starting up under a shelter
program: Legal entities

51. 10 things to look for in a Start up
Partner or Shelter Program
Make sure you get the following benefits:
1. Free Cost Model Simulation comparing different regions
2. Flexible commitment: on any size project (headcount or Sq. Ft.)
3. No entrance or exit fee at the termination of your contract (with
coordinated exit strategies)
4. Fast and worry free start-up operations (9 weeks)
5. Flexibility on how to operate in Mexico: incorporated or not Incorporated
6. Tax Savings: No VAT and no INCOME TAX for the first 4 years of operations
7. Billing transparency & no mark ups on purchasing in Mexico
8. Full Compliance Assistance: fiscal, customs, labor and environmental (no
red tape and no administrative risk or liabilities)
9. Customs Certified Program: quick processing on cross-border transactions
10. Ask for full administrative support: it will allow you to concentrate 100%
on your manufacturing operation, not on human resources recruitment,
looking for suppliers and so on.

52. 1 STEP TO GET A FREE COST MODEL
SIMULATION FOR MEXICO
How much will it cost you to operate in Mexico?

53. When you request a Cost Model Simulation, you will
be able to compare the total monthly operating cost
and cost per hour of your operations in different
regions in Mexico, including the following criteria:
 Cost of direct and indirect labor
 Cost of shipments to and from the International
Ports of Entry
 Cost of Real Estate Facility and Utilities
 Other costs of operating in Mexico
Get a Cost Model Simulation
Request your free cost model today at:
http://CostModel.SupplyChainInMexico.com

54. Sign up for your Free Cost Model Simulation at:
http://CostModel.SupplyChainInMexico.com
By Xavier Hurtado
Manufacturing in Mexico Facilitator
facilitator@AmericanIndustriesGroup.com
www.SupplyChainInMexico.com