On the other hand, it can be challenging and overwhelming when deciding how exactly to set up a facility and start manufacturing in Mexico. For medical device manufacturers, one of the first decisions is to choose between using a contract manufacturer, operating under a shelter, or establishing an independent entity in Mexico. This article briefly examines the three options and offers pros and cons to each.
Contract Manufacturing: Test the Waters
Contract manufacturing is simply hiring another manufacturing company to handle the manufacturing operations. This can be a good option for companies without very complex needs (i.e., high-volume, low-mix, straightforward processes) since the firm will have little oversight or control over the production. Contract manufacturing can also be used by start-ups and smaller companies seeking a short-term solution as it enables them to get up and running fairly quickly. Companies may also start with contract manufacturing to gain a sense of what it’s like operating in Mexico before they embarking on a larger commitment.
For medical device manufacturers in the U.S., however, contract manufacturing won’t necessarily translate into dramatically lower costs. There are few Mexican-owned contract manufacturers specializing in medical devices. As a result, a medtech firm will likely work with a U.S. company that will seek to charge U.S. prices.
Independent Entity: Complete Control, but Comes with Risk
On the other side of the “manufacturing in Mexico” spectrum, establishing an independent entity in the country is most attractive to large companies with the experience and resources to manage foreign operations on their own. The main advantage is retention of complete control over every aspect of manufacturing operations—from site selection to securing permits to hiring to running the facility.
Long-term plans to conduct operations in Mexico should be the ultimate goal for a company considering this route, as it is the most time-intensive and costly to set up. The process can take six to 12 months to establish a facility and obtain the permits and licenses necessary to operate in Mexico.
As an independent corporation, the medical device manufacturer is also responsible for complying with Mexico’s various laws and regulations, including labor laws, health and safety regulations, environmental regulations, and more.
Shelter: Maintain Control and Minimize Risk
Operating under a shelter is a unique option for manufacturing in Mexico. This means, rather than establishing an independent entity, a firm’s operations will be “sheltered” under a separate, Mexican-owned company. The company won’t officially “exist” in Mexico, so the shelter provider absorbs all the legal risk and exposure. Shelter providers also offer administrative and business support for HR, accounting, trade, and compliance, as well as other services, so the medical device company can fully focus on manufacturing operations.
A shelter differs from contract manufacturing because the company will control its manufacturing processes. It can import its own equipment and materials to Mexico and train workers on processes. The shelter provider acts as a business partner that manages the administrative side of the operation—assisting with selecting and leasing a facility, securing permits, hiring workers, and ensuring the device manufacturer remains compliant with laws and regulations.
Many companies choose the shelter option due to the convenience it offers. They also take advantage of the shelter provider’s expertise (a deep understanding of how to attract and hire the best engineers and technicians, for example).
Operating under a shelter offers additional cost savings as well. For example, the device manufacturer won’t have to pay income tax in Mexico for the first four years of operation. Another example is costs for HR or accounting software will be shared among the shelter provider’s other clients.
Sergio Tagliapietra has spent the last 30 years pioneering administrative service solutions in Mexico as the head and founder of IVEMSA. Today, working with government in all parts of the continent, he is one of the country’s most respected business leaders in the field.