Douglas Donahue
Vice President of Business Development
Entrada Group (Entrada)
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Insight

Foreign Companies Need to Pick Right Shelter Model

Mon, 09/01/2014 - 12:14

Entering the Mexican market through an industrial shelter is a well-established model, having lasted from the early days of the maquiladoras to the present day. But according to Douglas Donahue, Vice President of Business Development for Entrada Group (Entrada), taking advantage of a shelter starts by deciding which shelter models should be utilized. Entrada offers both on-site and offshore manufacturing models that enable a company to manufacture in Mexico while operating within both the US and Mexican legal frameworks. While its core business has traditionally involved the on-site model, due to it being the preferred choice of most foreign companies setting up here, the offshore option is growing in popularity. Both models can also work for SMEs seeking to create scale. “A shelter company can provide a higher level of expertise than a small company could provide on its own. This is critical within the automotive industry in which a lot of smaller Tier 1 and 2 companies are pushed toward Mexico for a number of reasons. Whether they are here to grow, to find clients, or to cut costs, they will have to compete against larger companies,” explains Donahue. Enter Entrada with three services at its disposal: HR, financial, and import-export. Donahue says the HR department may be the most important within Entrada’s operations as it means companies can delegate the hiring of all personal within the shelter. 14 of Entrada’s clients currently entrust it with this, requiring it to demonstrate a complete understanding of each corporate culture. Sal Martínez, Entrada’s Director of Operations, explains that the group has invested the most time and effort into its HR department over the last three years. The import-export department is seen as an attractive feature for Entrada’s customers, since the Mexican government requires companies to carefully document and track all products that enter and leave the country. In Donahue’s experience, this can mean a 100-strong company can need four fulltime staff devoted to keeping registers up to date. To make up for this, Entrada provides documentation services to track imports and exports in order to ensure compliance. “Our experience also means we are able to negotiate better terms for customers through economies of scale that impact transaction costs,” says Donahue

This work with incoming Mexican companies has given Entrada a bird’s eye view of the Mexican market. It has found that companies are now moving beyond a focus only on cost and cheap labor that long colored perceptions in Mexico. “Our clients are starting to look for a better and more diversified portfolio of services, as sophisticated manufacturing operations are becoming a priority. This level of sophistication requires highly skilled technicians and executives. The second trend is the influx of German and Japanese clients to the Mexican market, who bring different mentalities with them. Unlike North American companies who have no problem turning over control of an operation and localizing it, Japanese and Europeans largely prefer to keep control,” explains Donahue.

Donahue is also seeing an evolution in a major reality of the Mexican automotive market. “A lot of our clients do initially come to Mexico because they are asked to do so by OEMs, but they come to see this country as a real opportunity. Once they are here and start winning contracts, their interest in this market grows,” says Donahue. This evolution has actually led Entrada to offer a new service. A lot of OEMs require Mexican invoicing but this can be complicated for Tier 1 and 2 companies to offer, leading Entrada to create an invoice service for them. “Being able to invoice in Mexico is becoming a growing need. Doing so will allow a company to multiply its sales in Mexico with both international and domestic companies.” As proven by its invoicing service, Entrada has kept reinvesting time and money into its systems to improve its flexibility, adapt to the methods of each of its clients, and seamlessly broaden their services as needed. Entrada’s strategic location of Fresnillo, Zacatecas, will continue to serve as Entrada’s hub to offer its clients the opportunity to reduce and control their direct and indirect labor costs while putting them at the center of growth of the Mexican automotive industry. With two new clients in Queretaro and three more across the rest of the Bajio, the central region is anchoring Entrada’s planned expansion. Donahue is predicting 33% growth for Entrada in 2014, accompanied by a move from 300 to 400 employees.