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When Mexico makes headlines these days it’s usually for rare-but-shocking drug-related violence. Unfortunately, this dark spot has somewhat obscured 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 company-wide job and community security. 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. Manufacturing has been a significant driver of the economy, growing 8 percent over the past year and creating 1.8 million jobs. 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 Santa Fe Springs, Calif.-based Phillips Industries, which makes customized and off-the-shelf electronics for the transportation industry and has operated a plant in Saltillo, Coahuila, Mexico, since 2007. Phillips Industries manufactures customized trailer harnesses at its Saltillo plant, which accounts for about 25 percent of the company’s volume. Phillips Industries first became interested in Mexico in 2006 when attending an open house at a Mexican plant operated by Daimler Truck (Freightliner in the Untied States), one of its customers. At the time, Daimler was encouraging its suppliers to site facilities in Mexico, a common way to create mutual efficiencies known as “clustering.” Simultaneously, Phillips was dealing with performance problems at a Dallas, Texas, plant that seemed to have a low probability of quick resolution. According to Rob Phillips, Vice President of Global Operations, the decision was made to shut down the Dallas plant and move production to Mexico, and the company opted for a “shelter model” to set up and run the operation. Fundamentally, this model mimics outsourcing, but the manufacturer maintains control of critical functions such as business 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, the importing and set-up of production machinery, utilities relationships, and even employment. Faster is Better Beyond cost savings, the biggest benefits of a shelter model is 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 competencies and serving customers. Phillips chose The Offshore Group, which runs two industrial parks in addition to Saltillo (Guaymas/Empalme, Sonora and Guadalajara, Jalisco). Rob Phillips said the speed with which the Saltillo plant was set up and began production provided a huge advantage over going it alone. “We began negotiating in a meeting September; we signed a contract on Halloween day; and we were up and running by the beginning of the next year,” he said. “The decision to move production was a quick decision, and The Offshore Group kept pace with us. We were a company with no experience operating in Mexico, and we were able to set up a world-class facility in a short period of time.” Phillips said going with the shelter model shortened set-up time because The Offshore Group winnowed job applications to those that matched Phillips’ criteria and needs, imported and set up production machinery, and handled all other “localized” aspects of setting up shop in Mexico. “They were able to handle all of the details that we had no experience with.” When companies such as Phillips Industries can shorten set-up time for a new facility, it can begin fulfilling customer orders sooner, which in turn shortens the return-on-investment period for up-front costs. As a result, the new operation begins contributing to profitability and cash flow sooner. Having a shelter facility in Mexico shortens cycle time on other key metrics compared with locating a facility in an overseas location, such as Asia. For example, Rob Phillips said the lead time for Phillips’ customized trailer harnesses that are made in Saltillo is four to five times shorter than competitors’ lead times. Both the shorter shipment route (no ocean to cross for North America) and similarity of time zones and cultural factors play into that advantage. It is much easier to align internal processes when a foreign facility is staffed with English-speaking professionals who are working in the same time zone. For example, Phillips Industries runs its R&D program out of its California headquarters, but engineers there work closely with engineers in Saltillo to determine manufacturability of new products, input costs, and other elements that are part of bids for new business.  Steven A. Colantuoni is the director of corporate marketing for the Tucson, Arizona-based Offshore Group. The Offshore Group has enabled businesses to establish and start-up low-cost and low-risk operations since 1986 Steve has been working in the area of U.S. -Mexico manufacturing and trade for the past twenty years, and is fluent in both Spanish and Portuguese Mexico Manufacturing , Mexico Call Centers
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