History of outsourcing in Mexico
With the conclusion of the U.S. farm labor agreement known as the bracero program in the late 1960s, manufacturing in Mexico developed.
The U.S. and Mexican governments resorted to The Border Industrialization Program, which allowed U.S. businesses to build products in Mexico with reduced duties using raw materials and components from the U.S.
The Maquiladora Program, or simply The Maquila Program, was the name given to the Border Industrialization Program by the public.
Over the years, simple assembly operations in Mexico have evolved into complicated manufacturing operations, including televisions, vehicles, industrial, and personal products.
While low-cost commodity manufacturing has flocked to China, Mexico is attracting U.S. businesses looking for low-cost alternatives close to home for higher-value end products and just-in-time components.
Larger international companies with global expertise can quickly establish operations in Mexico. However, smaller businesses are usually encouraged to obtain professional assistance from a certified consulting firm or collaborate with a Mexican partner.
The pros of outsourcing to Mexico
The cost of goods is unquestionably the most compelling reason to outsource labor and production. Not only is labor economic in Mexico, but many resources are as well. Doing business in Mexico can significantly boost a company’s profitability over time.
Aside from being cost-effective, here are the other benefits of nearshoring to Mexico:
Convenient time zones
When recruiting a development staff from a nearshore region, keep in mind the time zone difference. Mexico is an excellent alternative because it is geographically close to the United States and has the same time zone.
As a result of sharing the same workday hours, scheduling conference calls is more convenient. In addition, you can sometimes save money on additional resources by resolving bugs, app, or website failures in real-time.
Lower labor and operational costs
The most significant benefit of outsourcing company processes to Mexico is lower labor costs. The cost of work in Mexico is a fraction of what it costs in the United States.
Nearshoring to Mexico makes a big difference in almost every corporate operation, but it’s most noticeable in jobs like customer service, where wages are the highest cost.
Instead of overinvesting in equipment and resources for unpredictable large volumes, the customer can request more or less output from the contract manufacturer based on demand or estimates.
Outsourcing allows organizations to quickly scale up with already-trained employees who can handle the additional volume of work. In addition, because no capital expenditures are necessary, outsourcing allows a company to be considerably more flexible.
Focused core competencies
By adopting contract manufacturing, the hiring business can refocus time, labor, and resources on revenue-generating operations like marketing and sales.
Well-educated and bilingual employees
Therefore, Mexico is often the best option for cost-saving outsourcing without linguistic issues. However, improving customer service is one of the other benefits of outsourcing to Mexico for contact centers.
Mexican companies that provide multilingual services are in a better position to meet the needs of their consumers because Spanish is one of the most spoken languages on the planet and the second most widely spoken language in the United States.
Mexico’s outsourcing ban
The difficulties when starting a business in southern states can be intimidating. Different legal and taxation systems, recruitment, language problems, and culture are obstacles for the inexperienced.
In November 2020, the Mexican government prohibited outsourcing. President Andrés Manuel López Obrador proposed measures to abolish most subcontracting and job outsourcing by private enterprises effectively.
The Amendments intend to prevent outsourcing, a process by which a beneficiary hires its required people through a third party to avoid or lessen the employer’s liabilities and obligations under Mexican law.
General highlights of Mexico restrictions on the use of outsourced labor:
Specialized services and contractors use
Employers would still be able to hire contractors to deliver specialized services unrelated to the company’s primary operations.
Profit-sharing participation in the company
Employees who had previously worked for service firms or third-party suppliers would have to be included in profit-sharing plans.
Different laws are aligned and modified
The reforms would necessitate changes to other laws, including the federal labor law, social security law, the law governing the Institute of the National Housing Fund for Workers, the federal fiscal code, income tax law, and value-added tax law, as well as the federal fiscal code, income tax law, and value-added tax law.
Employment Service Providers
According to the change, employment agencies or intermediaries are now only allowed to assist in recruiting, selecting, and training candidates. According to the change, the company that receives the services must also be the one that hires.
Outsourcing in Mexico: Answering your FAQs
Because of the current modifications in Mexico, many potential clients have many concerns answered before embarking on nearshore cooperation. Here are the common questions about manufacturing in Mexico, as well as the information you’ll need to get started.
What is the purpose of the legislation?
The primary purpose of amendments is to incentivize businesses that benefit from hiring employees directly under labor agreements. That reflects market conditions and triggers the tax and social security contributions required by applicable law.
Does Mexico Outsource?
Mexico declares that outsourcing will be strictly limited. According to the government, the practice is helpful to avoid paying employees the benefits that they are entitled to under the law.
Outsourcing companies will be required to register with the government and pay all applicable taxes and benefits. Furthermore, companies would be required to provide better accounting for mandated profit-sharing plans, which the Labor Department estimates will increase payments by 156%.
What are the common legal structures used in outsourcing?
Subcontracting personnel or human resource outsourcing is the most prevalent use of outsourcing. Establishing a service agreement between any firm and the provider not to hire employees directly limits contingencies and liabilities.
Is it better to do business in Mexico with a small or large company?
Both have had great success and have also had significant failures. Things are how you do it that matters, not the size. What you know and who you work with are both critical factors. It typically comes down to finding the correct people and firm to work with—people who will take the effort to learn about your company and become true partners with you.
Services you can outsource to Mexico
Given the uncertainty and adjustments in outsourcing restrictions, Mexico’s growing outsourcing industries are likely to continue to thrive. Some services you can outsource in Mexico are listed below:
The automobile, aviation and aerospace, medical device, garment and textile, and consumer products industries are Mexico’s most well-known manufacturing businesses.
There are several reasons why relocating your production to Mexico is a wise decision. The country and its manufacturing sector provide a variety of advantages, including proximity. Items made in Mexico are imported into the United States over land. Shipping may be completed swiftly and efficiently, thereby reducing the cost of outsourcing.
Accounting and bookkeeping
Outsourced accounting is a service that offers small businesses comprehensive accounting services. Outsourced accounting firms have an entire staff of accountants, allowing them to supply a small team of accountants at a lesser cost than employing.
Accounting and bookkeeping outsourcing comes in if your in-house team cannot handle your company’s financial affairs. Your hired personnel takes over all obligations related to your books and manages them for the agreed-upon period.
Accounting and bookkeeping outsourcing is available in many countries, including Mexico. A bilingual Mexican accounting team will manage your personal and commercial accounting duties in Mexico. Easy accounting for foreigners in Mexico.
The act of outsourcing back-office assists businesses in lowering the expense of purchasing more office space and the cost of attracting and retaining personnel.
Companies looking for a cost-effective solution to maximize their recruiting efforts and personnel growth look to Mexico as a competitive edge. In addition, small to medium-sized companies in the United States can profit from Mexico’s skilled labor pool and proximity.
The following are examples of back-office outsourcing services:
- Searching for talent
- Screening and hiring of candidates
- Salary and employee benefits
- Management of Human Resources
- Distribution of paychecks
- Assistance with the onboarding process
American companies that outsource to Mexico
Many American manufacturers are considering outsourcing some or all of their manufacturing activities. When done correctly, this can save expenses without sacrificing quality, flexibility, or inventory. As a result, several American industries have chosen to nearshore in Mexico. Here are some of them:
- General Motors
Why outsource to Mexico?
- Though Mexico is now under the new law regarding the outsourcing restrictions, there are still many reasons to dive into nearshoring.
- Outsourcing to Mexico enables companies to do tasks at a lesser cost and, in some cases, with higher-quality service providers.
- When compared to other low-cost countries, manufacturing in Mexico has become the favored option.
- Mexico’s competitive advantages, such as lower salaries, stable labor relations, lower landed transportation costs, advantageous currency exchange rates, and reasonable tariff prices, are increasingly appreciated by businesses.