A model plant in Mexico

When Mexico makes headlines these days, it’s usually for rare but shocking drug-related violence. Unfortunately, this dark spot has blocked an expanding bright spot that is helping many U.S.-based global manufacturers to stay competitive. A variety of companies have set up plants south of the border and are counting on Mexico’s proximity to the United States, cultural similarities and highly skilled and motivated workforce to fuel growth plans that support domestic job security.

According to the manufacturing trade journal IndustryWeek, foreign direct investment in Mexico rose 9.7 percent in 2011 compared with 2010 to reach $19.44 billion. After a 5.5 percent growth rate in 2011, the Mexican economy is expected to grow 4.5 percent in 2012. Mexico is still considered a lower-cost option compared with the United States, but increasingly, manufacturers are putting production in Mexico for other competitive advantages that benefit the entire company, including U.S. operations.

One such company is The Intec Group of Palatine, Ill., a global supplier of automotive parts and systems. The company employs 375 people at its Guaymas manufacturing plant, which accounts for $33 million in annual U.S. sales. In addition to U.S. customers, the plant serves customers in Mexico, Canada and China.

According to Intec President and CEO Steven M. Perlman, having a Mexican location improves Intec’s performance both directly and indirectly.

“Directly, it is the highest performer of all our global facilities, including those in Asia,” Perlman said. “The skills and work ethic of the staff there have resulted in Intec Mexico delivering the highest margins to us and the best quality and service to our customers.

“Indirectly, Intec Mexico’s performance has motivated our customers in sourcing more business with Intec’s U.S. and Asia facilities. Intec Mexico is also developing technology that will be used by our other factories.”

Intec has been manufacturing in Mexico since 2002. It has operated under the “manufacturing shelter” business model administered by The Offshore Group, an outsourced manufacturing support or “shelter” company. Fundamentally, the shelter business model mimics outsourcing, but the manufacturer maintains control of critical core functions such as production and manufacturing processes, strategy planning, hiring decisions and product-specific parts and materials procurement. The shelter company handles the administrative side of setting up and managing a plant: permitting and regulation, recruiting both direct and indirect labor, the importing and set-up of production machinery and raw materials, utilities relationships, and the payment of salary and benefits to the workforce.

The Offshore Group runs two industrial parks in Guaymas and Empalme, Sonora, as well as a third park in Saltillo, Coahuila.  The company has also begun to offer its services in Guadalajara, Jalisco.

Beyond cost savings, the biggest benefits of a shelter model in Mexico are that manufacturers can launch production much faster, the entire process of setting up a foreign site is simplified and handled by experts, and the producer can devote resources to core value-added manufacturing competencies and serving customers.

“Using the shelter model offered by The Offshore Group allows us to focus our attention and efforts on our technology, development of our people, and our customers,” Perlman said. “These are the critical activities for any company’s success.”

Our partner in Mexico handles “essential, but not necessarily value-added activities,” Perlman said.

“Those are many of our ‘back office’ or administration requirements, including payroll and benefits administration, tax administration, non-direct material purchasing, recruiting and employment screening. This frees up the top-level people in our organization to work on strategies that provide a better value proposition for our clients.”

Some of the other benefits of the shelter model in Mexico that have helped Intec be more competitive include support and networking with other Offshore Group clients, management of labor-union negotiations, instant credit from suppliers and accurate estimates on how long new building projects and infrastructure upgrades will take.

Perlman said Intec Mexico is an important part of the company’s growth strategy. Because the plant is so efficient, the company has been able to “reclaim” factory floor space for additional growth.

“This has delayed our need to expand beyond the current facility, but we believe we will be expanding our capacity beyond our current facility within five years. In the meantime, the current plan is to increase output and revenues at the existing Mexico facility by at least 20 percent and as much as 50 percent.”