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Need Feedback on Moving Production to Mexico

One of my clients has asked me to assist them in evaluating the benefits of moving their production from Orange County CA to nearby Tijuana Mexico, perhaps using a Maquiladora "Shelter" provider. We've got a handle on the basics; Our production work is simple and low skill in nature, the logistics should be manageable, etc. However, I'm nervous that there may be "hidden" costs or difficulties that aren't yet obvious to us, and of course the Shelter provider is painting the rosiest of pictures for us, but their bias is clear. I'd appreciate any feedback. Thanks.

Answers

Anonymous
(CFO) |

By benefits I am assuming you are referring to short term FINANCIAL gains? I will urge the company to look beyond the short term financial savings.

My feedback is this, is the financial benefit (no matter how you arrive/compute it) worth the moral, social, and dare I say patriotic hazards of moving production offshore? When a lot of companies are moving their production inwards to provide employment to Americans and pay US taxes to fullfill their social responsibility, why (if not financial) would a company even think about it?

When moving production back to the US, paying higher wages etc, is having a positive effect on company stock prices (more than the short term financial benefits of decisions opposite), why even think about it?

I am thinking this is not the "feedback" you were expecting, but points to consider in the decision making process.

Ern Miller
Title: Co-CEO
Company: Miller Small Business Solutions
(Co-CEO, Miller Small Business Solutions) |

If I were making a product that had mass appeal (especially, if my product has international appeal), required low skilled labor, and could be imported, and would be clearly more profitable, I would not hesitate to move to another country.

Which country? I do not know.

How could I, as one of the most patriotic people I know say such a thing?

Because, the federal government has declared war on anyone making a profit in this country. They use taxes as a punishment for making a profit. If they cannot politically fine or tax a company into submission, they use the EPA. The EEOC is another club in the federal arsenal.

Oh, do I need to remind you of the company back-breaking ability of American unions.

No, thanks.

I would consider China over Mexico, unless the product I make is of such a size that the shipping cost made Mexico more appealing.

A reason I would choose China is because, they have tons of factories that can change assembly line production on a dime. That way, I can produce what I need quickly, and stop when my stocks are full, and rerun as needed. Plus, they do not have as much care about labor costs. Oh, and having someone else running the factory limits liability for production, such as using lead paint, provided you put in the production contract to NOT use lead paint.

A prime example of this is Apple.

Another benefit of using China. Protection of patent. China has proven over and over, if you make a great product, they will copy it and pay you none of the royalties. However, if you make it in China, the money you bring builds your influence with the Chinese bureaucracy.

It is sad that nearly every American flag flown today has stamped in very tiny letters, "MADE IN CHINA". But that is the fault of politicians, not businessmen.

Anonymous
(Agent) |

My company just made this type of move 2 years ago. There are many issues to consider. Production work is never "simple". Even the easiest tasks must be learned properly to be productive. Then there is the hidden costs in the "shelter" companies. How much will they charge for border crossings? Who handles the materials? You'll be shocked at transportation insurance coverage in Mexico, it is not considered a safe haven for activity. Who will manage the shelter company? What costs are you locked into for labor and space? And ultimately, what changes are on the horizon for the shelter companies. Current Mexico law is scheduled to change in a couple of years making these shelter arrangements less attractive.

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