Moving your business to Mexico

Psst… want to expand your plastics business and make more money? Set up a facility in Mexico and you can open up your market.

Here are the statistics: Mexico’s demand for plastics and packaging equipment is expected to grow by 15 percent over the next three years. Right now, more than 80 percent of Mexico’s plastics and packaging equipment is imported, representing nearly $2 billion annually.

But those are just the hard facts supporting the rationale to move a facility or set up a plant in Mexico. Dave Archer, general manager of ATM Export Management, Aurora, ON, says it is cost-effective to have a plant where your customer is. “The Mexican-U.S. border is hell,” he says. “It’s one-and-a-half times busier than the Ambassador Bridge at the Windsor-Detroit crossing.” Busy borders, says Archer, whose company represents Canadian firms in Mexico, can upset potential business. It’s not so much for cost effectiveness, but for the sake of service that a company should consider moving to Mexico. “If you mess up someone like General Motors once, you’re in trouble,” he says. “Customers want to know they [their suppliers] are 20 km down the road, not 4,000 km away where they can’t help [if something goes wrong].” But if service isn’t enough to get you to think about Mexico as a possible site for your company, then consider this: proportionally, the manufacturing market is bigger in Mexico, says Mr. Archer. Thirty-four percent of the market in Mexico can be attributed to manufacturing, while Canada’s market in the same sector is only 19 percent, he adds.

According to reports from the Canadian Embassy in Mexico, one of the major reasons for the growth of plastics and plastic products in Mexico is the increase in per capita consumption of plastic products and the substitution of parts in products such as household appliances, electronics products, vehicles and machinery. If local production grows at a rate of five percent in the next three years, Mexico will still have to import injection molded, extruded and blow molded parts and packaging, as well as molds, to accommodate the substitution of metal, glass and other materials. “As an area gets developed, there’s a bigger need for things on the consumer side, such as plastic film cases; as more people get telephones and TVs you need more plastics,” says Diane Actman, manager, marketing services at BASF’s New Jersey office.

Sources from BANCOMEXT, the Mexican Bank for Foreign Trade, say that not only is the plastics industry in Mexico growing in exponential ways, but that the new government is encouraging foreign investment more than ever. Thus there are benefits to be had from investing in Mexico other than profits. These benefits differ from state to state, but they include such gifts as free land to build on, or not paying taxes for the first two years of operation. Employees may also get benefits, such as a school being built for their children or land to live on, says BANCOMEXT. And let’s not forget that NAFTA means lower duties for Canadian suppliers entering Mexico. “Our most important markets are the U.S. and Canada. Six percent of Mexico’s exports go to Canada,” say BANCOMEXT officials.

Besides NAFTA, Mexico also has agreements with countries in South and Central America making it a natural hub from which to export products and services to the southern hemisphere. And it is currently in the process of setting up agreements with European countries. In total, Mexico has agreements similar to NAFTA with 32 countries.

If you’re still not convinced, consider the case of BASF. This company is investing more than US$67 million in a project that involves building a third world-scale plant to produce Styrolux SBS in Altamira, Mexico, which is located on the northeastern coast near Tampico. (BASF already has two plants in this area and the third is scheduled to open in 2003). “The plant, which will have an initial capacity of 100 million pounds, is scheduled to start producing at the start of 2003 and will supply customers mainly in the NAFTA countries and South America,” says Actman in a recent release. Why Mexico? Because BASF claims it will give them access to the world’s biggest SBS market. “There are a lot of advantages to Mexico,” she says. “Being on the coast, we’re able to service South America and North America by ship.” BASF is able to ship its products inland on existing rail lines. “It’s easy to get raw materials to help you manufacture your products,” Actman adds. BASF also chose Mexico because it has a good labor force, the economics are good and, most importantly, there is still lots of land available. “There’s not a lot of land available [on the eastern coast of the U.S.]. It’s all taken up already,” Actman says.

If you do find Mexico appealing and there is a market there for your product, then the next step is finding out how to establish your market or plant there. The first issue is where to set up your business. Mexico’s major industrial areas are Mexico City, Monterrey (near the border of Texas) and Guadalajara (southwest of Mexico City) — Mexico’s three biggest cities. While they may be the biggest areas, they are not the only places to set up shop, as BASF has proven. Next is to determine what the laws and regulations are. Don’t be fooled, says Archer, environmental and labor regulations are at the same standard as Canada. “They have strong unions in Mexico,” he says. The Mexican government recently increased the minimum wage by 10 percent to about US$4 per day. Roughly 20 percent of Mexico’s work force earns the minimum wage.

Sifting through government handouts can be difficult enough, without having to communicate with Spanish-speaking lawyers. BANCOMEXT says the biggest problem for companies wanting to move to Mexico is the language barrier. ATM Export Manufacturing is set up to help companies that don’t speak Spanish communicate with locals. “You need to get a local lawyer on board to make sure you’re following the regulations,” Archer says, as standards may be the same, but laws can be quite different in a foreign country.

BANCOMEXT, with offices in Toronto, Montreal and Vancouver can also help you set up in Mexico. It will receive your call and then ask for a profile of your company. Then a meeting will be set up. Size of the company doesn’t matter, either. “We’re used to working more with small- and medium-sized companies. Large companies don’t usually need our help,” say sources from BANCOMEXT.

If you want to forego these steps and get yourself set up in Mexico without any outside aid, you might want to apply for an FM3 form at your nearest Mexican embassy or consulate. This is a permit allowing an individual to do business for up to six months in Mexico. The permit is renewable.

Directory lists mucho companies

A directory from Solunet-Infomax, Inc. contains what is claimed to be the most comprehensive listing of companies in the Mexican maquiladora industry. The directory, which has been recently updated with 584 new plants, is available in either CD or in book format. Each listing contains a senior-level contact, manufacturing information about the company, as well as phone, fax and address information. Additionally, 51 percent of the companies have verified e-mail addresses. The directory is available by specific regions (e.g. Baja) for US$395, or for all of Mexico for US$995. For more information call 800-858-6788.