Mexico had its toughest time during 2001 to 2003 because of the slowdown in the economy of U.S economy and the emergence of China as a hub of low cost manufacturing. But, after the government’s check on inflation, interest rates and laws on economics, their economy started growing and manufacturing in Mexico also grew.
With the increase in the cost and regulatory rules imposed by many states, big shots of manufacturing companies are looking for ways to reduce the cost. And for these big shots, Mexico turned out to be a preferred area for setting up their operations.
Particularly, Shelter manufacturing in Mexico started getting better and better. Shelter manufacturing is more a kind of maquiladora program where factories import raw materials with free of duty and there is no tariff fee for assembling and re-exporting the assembled product to the same country where it was manufactured.
In other words, shelter manufacturing means tying up with a Mexican based company which provides labor workforce tasks for the manufacturing in Mexico.
Though there are more methods of implementing their business, most of the Mexican manufacturers preferred this method because this method proved to be low cost for labor facilities. The labor workforce in Mexico is very stable and reliable. Unlike other developed countries that have a high ratio of highly skilled engineers, Mexico has a good ratio of core labor workers. The job opportunity for people in Mexico was also scarce. So, this made it easy for foreign firm to invest more on labor work force in Mexico. This method is also called as ‘twin-plant’.
Intensive or core manufacturing lies in place while other labor intensive part of manufacturing is moved to Mexico. For example, take the case of motor manufacturing in Mexico. Here, all the core part manufacturing takes place in U.S or nearby countries. But, the part which involves more labor, like testing each spare part, packaging, painting, etc are moved to Mexico Manufacturing Plant. Manufacturers in Mexico saved as much as 50% of the labor cost which they were spending earlier.
After the core manufactured product is shipped to Mexico, the ownership of the product doesn’t change. Mexico manufacturers just add a part to the manufacturing. The firm which involves in shelter manufacturing continues to remain the owner of the product. This applies to every tool, equipments and work force involved in the manufacturing.
Mexico manufacturers have another difficulty in this shelter manufacturing which is to transport the goods back and forth. Mexico manufacturers are wholly responsible for pickup and delivery along with the import and export charges. U.S and Mexico has better understanding in transportation policies and the duties and regulations are bit relaxed between these countries.
However, manufacturers in Mexico who have tie ups with other countries than U.S would consider this transportation of goods as a major factor in deciding the product price. Despite these difficulties, shelter manufacturing in Mexico is still cheap compare to other countries.
