Welcome to Tech Donor. Today we have shared the experience of Joshua Rubin, Vice President of Business Development at Javid LLC, which helps manufacturing in Mexico companies set up operations nearshoring Mexico. We’re going to talk about how to nearshore your operations manufacturing in Mexico.
Table of Contents:
- Unlocking Mexico’s Manufacturing Potential with Javid LLC
- The Mexican Influence on Everyday Products
- Understanding the Common Shelter Company Approach
- How Shelter Companies Simplify Business Setup in Mexico
- Exploring Shelter For Operations Manufacturing in Mexico
- Choosing the Right Path: Subcontractor or Shelter Company?
- Understanding Shelter Company Costs
- Cost-Efficient Managerial Support Through Shelters
- The Role of Shelter Companies in Streamlining Business Operations
- Manufacturing in Mexico: Government’s Roles
- Manufacturing in Mexico with Shelter Services
- Diversifying Operations Across Borders
- Unlocking Potential Manufacturing In Mexico
- Diverse Industrial Clusters Manufacturing in Mexico
Joshua Rubin has been with Javid LLC for about eight years. I came out here right when they finished their training with the military. For eight years and have expanded all the departments that Javid has to offer: human resources, accounting, customs, environmental health, and safety.
Unlocking Mexico’s Manufacturing Potential with Javid LLC
I’ve also tinkered a little bit with IT and certain programs that they have there. I’m also an executive board member of INDEX Nogales, which is the Maquiladora, or manufacturing in Mexico industry association. As a part of the Nogales, Sonora team, I actively participate in its operations. Additionally, I serve as an executive board member of the Greater Nogales Santa Cruz County Port Authority. This group comprises all local industries, fresh produce, the government of Nogales, Arizona, CBP, the Arizona government, and the Maquiladora industry. Together, we work to facilitate trade along our southern border.
Javid LLC is a Mexican shelter company. What we basically do is help foreign companies open up operations manufacturing in Mexico. There are many different ways of doing it, but in a sense, that’s what we do.
We provide our clients with the administrative departments of their company, including human resources, accounting, customs, and environmental health and safety, and leave the actual manufacturing piece to our clients. They’ll take care of the trade, the knowledge of how to produce their product, and what makes them money at the end of the day.
The Mexican Influence on Everyday Products
We currently serve 27 customers across 29 facilities. Our clients occupy more than 1.8 million square feet of rental space, and our dedicated team boasts over 3,500 employees. The companies we assist range in size, with a staff count that spans from as few as three to well over 700. My clients can range from different industries—medical, aerospace, automotive, electronics, military products, promotional products, furniture, construction, you name it. I probably have a customer that makes something in that industry here, just in Nogales, Arizona, or Nogales, Sonora.
In the cross-border industry, it’s quite surprising for many to discover the extent of product manufacturing in Mexico. You know, the product that they probably use every day, and they don’t even know it came from Mexico. But since I’ve been working in this industry, it really blows my mind, and I think it’s just really cool.
Understanding the Common Shelter Company Approach
A Mexican shelter company can operate in a few different ways, kind of like what I mentioned above. I’m going to structure it around three different options, but depending on the shelter company, there could be different options that they can provide to you.
The first option, which is the most common and the most traditional, and the way that most companies will start, would be that the shelter company has a legal entity manufacturing in Mexico, and they’re the ones that will provide you with all the support. What that means is the following:
- Hire the employees under my name
- Rent the buildings under my name
How Shelter Companies Simplify Business Setup in Mexico
The shelter company receives and covers all vendor expenses. That company, the client, has no existing manufacturing in Mexico other than a name on their building that just shows a relationship to who the building is. Besides that, there is nothing in the Mexican government that states who that company is; they don’t exist. The shelter company exists.
Option two is a combination of option one. Option two would be a company that says, “I want to start manufacturing in Mexico, and I want my own legal entity, and I want it to be under my name. However, knowing that the time to be able to form that company is pretty lengthy, they will come into a shelter company to start them up, and they will say, ‘Hey, I want to be with you for a year, I want to be here for two years, and that’s it, and then let me go on my own.’
So what will happen is the same as option one, but the difference is that during the process, the shelter company is also creating that legal entity for them, helping them get their EMICs permit, which is the permit that allows them to import and export out of the country as manufacturing in Mexico maquiladora, and helping them do that process. Once the establishment process is complete, the shelter company transfers all responsibilities to the standalone company, allowing it to proceed independently.
Exploring Shelter For Operations Manufacturing in Mexico
Option three is a hybrid of the two. There are companies for some reason that want to have their own operation, and they want it underneath their legal entity, the way their corporations work, and they want to say, ‘I want it to be under my entity.’ Or they already have a legal entity manufacturing in Mexico, but they want a shelter company to take care of the administrative departments.
So it’s a combination of both that the shelter company can come in and run the human resources, the accounting, the customs, and the environmental health and safety under the company’s legal entity. So that’s a combination of the two that you can work on. I would consider three options: how the shelter models can operate and how we could implement that concept.
Now, for the misconceptions, the main misconception that I would say is that people will come to a shelter company thinking that we’re subcontractors, and at the end of the day, we’re not subcontractors. We are a company that helps foreign companies open up operations manufacturing in Mexico.
Choosing the Right Path: Subcontractor or Shelter Company?
As a subcontractor, I have a few clients that are subcontractors as well as other shelter companies, so we get a lot of phone calls throughout the year saying, ‘I’m looking for someone to produce these bags.’ I’m going to say, ‘Okay, do you want to open up your own operation?’ They say, ‘No, I want someone to do it for me.’ Okay, so you’re looking for a subcontractor, not a shelter.
Some shelters enlist subcontractors or partner with larger companies, either under their own ownership or that of their clients, as I mentioned earlier. This collaborative approach allows them to deliver the needed assistance. I would say that’s probably the biggest misconception: the difference in understanding what those two are.
Understanding Shelter Company Costs
Regarding costs, breaking down the specifics can be quite intricate. To be transparent, shelter companies determine their fees by considering your headcount. Thus, when it comes to shelter costs, they calculate it based on your headcount, resulting in a cost per hour corresponding to the number of employees you likely have. That’s the way most shelters will charge. Now, if you want to actually look at what the cost is of being in a shelter, it’s always going to be cheaper to be in a shelter than to be in a standalone.
That’s not the only reason why companies choose not to be in a shelter; it’s not always due to cost. The reasons why they want to be independent could be a corporation; it could be a company that is a huge company and wants its own standing. So there are different reasons in there, but cost-wise, being under shelter is always going to be cheaper.
Why is that? Shelter companies are experts at economies of scale. We understand how to invest; really, let’s just use headcount, our employees. I’ve invested a lot of money to ensure that I have the best managers running my departments and that those managers have the best employees working in those departments. A typical company of say 100 employees isn’t going to be able to shed that cost on those employees.
Cost-Efficient Managerial Support Through Shelters
So how do shelters benefit, or how do shelters provide that benefit to the companies? We’re able to get a high-level manager at a decent salary for those people, but we spread the cost across all the clients around there. We are able to provide one client with a manager of a very high caliber at a very small fractional price.
This also includes access to all my staff or all the shelter staff. Some shelters may have a hundred employees just on the staff, while others may have two or three hundred employees. That client has access to all those employees, making it a very interesting opportunity.
Back in the past, being a smaller operation, you would still get the same kind of pull as a bigger corporation just because of the investment and the foresight of what the company was doing. One thing to note is that commencing an operation can be challenging, initiating an operation, particularly in the United States, can prove intricate when you’re already based in the United States. Try doing it in a country where you don’t understand the laws, you don’t understand maybe the language, and you have that barrier in between you that you think in the US you’re able to do it streamlined, but manufacturing in Mexico, it’s a little bit more complicated.
The Role of Shelter Companies in Streamlining Business Operations
Shelter companies provide an amazing amount of resources and experience, at least on the administrative side, which is the very critical part of how to import, export, hire employees, and make sure that everything’s in legal compliance. At the end of the day, we provide that legal framework or expertise to our clients for at least the administrative side of a company. And then, at the end of the day, a shelter company is your partner. They share the same goals in mind as your operation might, as a company’s operation might.
So a company’s goal is to get the product out and increase sales. We want the same thing for our clients because that means if you’re successful, you’re successful. So that’s what we’re looking for.
Unfortunately, being a company, say using 100 employees as an example, nowadays means you won’t get as much pull from the government as you would for a company with 5,000 employees. That’s where the benefit comes from the same economies of scale that you have with a shelter company. A shelter company isn’t representing one company to the Mexican government; it might be just one shelter company, but that one shelter company represents maybe 20, 30, 40, 50 different companies, three, four, five, six, ten to twenty thousand employees.
Manufacturing in Mexico: Government’s Roles
When you go to the Mexican government and say, ‘Hey, I need help in this,’ you’re going to get a lot more attention because that’s a lot of employees that the government is getting from the shelter company, whereas one company might not be as successful. I’m not saying that one company with one hundred employees isn’t going to get the same attention; they’ll still get the same attention.
However, you might get a little bit more expedited when you see that something like a new process that the government is putting in place isn’t affecting a company that has 5,000 employees versus 100 employees. It might have a little bit more pull on that one in leniency.
We typically advertise for about 90 days to initiate the startup of a company that provides shelters. It’s because if you’re going to use our legal entity, we already have the permits and licenses. We require only a minor step to initiate a company. At most, you’ll register the company at the location associated with our EMICs permit, which enables us to import and export.
Manufacturing in Mexico with Shelter Services
Just little tweaks and little things that we have to do administratively, and then the company’s able to start. So very quickly, they can start in their shelter, whereas if they wanted to go on their own, it could take a year or a little bit more to be able to get some of the permits, the bank accounts, the legal entity formed, and everything like that.
In two different ways. I did mention the part about subcontracting. I received more calls last year than I think we’ve ever received from people wanting to expand operations manufacturing in Mexico. A lot of it had to do with subcontracting. We, as shelter companies, are all located throughout all of nearshoring Mexico.
So we’re able to help them or point them in the right direction to a possible client that we already have or a subcontractor that can help them. However, something that was interesting that I found last year, strictly towards the end of the third quarter and fourth quarter once people started getting adjusted to the new lifestyle living with COVID, was that the company started to change the model.
Diversifying Operations Across Borders
I intend to streamline my operations by relocating half of them to Mexico. Simultaneously, I’ll expand both my U.S. and Mexican operations. Another option is to shut down our Chinese operations and consolidate them in nearshoring Mexico.
What we’ve observed is a growing trend among companies. Their goal is to maintain a balanced presence in the U.S., Mexico, and China. This reduces reliance on a single location, ensuring resilience in case of unexpected disruptions. Importantly, this doesn’t imply a complete withdrawal from any one market, as there are still advantages to operating in each of these regions.
But they said, “I don’t want to be restricted to one country or one location.” And then I get shut down for a pandemic or something else happens, and then I’m left not being able to supply my customers. So we did start seeing a lot of companies wanting to diversify their operations by creating additional locations. Maybe they had 100,000 square feet in China and another 100 in the U.S., and they want to say, “You know what?
Unlocking Potential Manufacturing In Mexico
Let’s do 50% China, 50% Mexico, and 100% in the U.S. and reduce our employees by that same footprint.” The trend we’re observing indicates a desire for a broader span to ensure minimal disruption to their operations.
When I speak to potential clients, they always get shocked when I start talking about what type of products would be manufacturing in Mexico. The quick answer is almost anything. There are only certain limitations on ITAR products, which are military and government products, and then weapons and ammunition are prohibited. Other than that, it’s pretty much an open game for you to manufacture and produce what you want. However, you should collaborate with your chosen shelter company to identify the optimal locations for your operations.
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Diverse Industrial Clusters Manufacturing in Mexico
Why do I say that? Because there are clusters manufacturing in Mexico of what’s big. Like, aerospace. For example, in Sonora, the state of Sonora, Mexico, is huge. We have over 300 aerospace companies working in Mexico alone:
For example, You can find certain industries all over the place, like wire harnesses and electronics. You can probably find a good portion of those, no matter where you go, where there’s an operation manufacturing in Mexico. You’ll be able to find that in Sonora first, or in nearshoring Mexico, for example. But there are clusters; Chihuahua is really big with textiles. Tijuana is a little hub for the medical industry.
There are definitely big clusters all over the place that you can find. And that’s where the shelter companies can definitely help you find a great location for you to manufacture. But when it comes to the products, you can manufacture almost anything, and the area is more tailored to the industry, not necessarily where it’s better to manufacture on the northern border if you’re in Mexico or if it’s better to be in the center of central Mexico. That really doesn’t dictate too much. It’s more about what your industry is and what you’re looking to manufacture.