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Shelter Companies bring foriegn investment home to Mexico

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Overview

The Croatian government wants Second Generation Diaspora Croats to return to Croatia to set up businesses to help improve the Croatian economy (or so they say). BUT, if the business environment is toxic chances for long term survival are low no matter how good the tax incentives are or how much free EU money you get. An interesting learning opportunity for improving the probability for success might be found in Mexico - in the maquiladora "Shelter Services" industry which has helped thousands of manufacturing companies set up in Mexico (stealing hundreds of thousands of Canadian and American jobs!)

Learn about "shelters" and skip rant about Croatia


Starting a Business

Starting a new company is easy in the USA where trust and rule of law are on the side of the investor. Survival rates in the USA for new businesses are:

  • 66% after 2 years
  • 55% after 5 years
  • 35% after 10 years



But Croatia is not the USA! Starting a business in the USA is difficult
- but even more difficult in the environment of low social capital and trust in Croatian

Article: Why So Many New Companies Fail During Their First Five Years


Croatia

Croatia will be hosting a conference "G2.1 Meeting Second Generation" from October 26-30, 2016.

From the website: MEETING G2.1 / About the event

This fall, from October 26th until October 30th, MEETING G2.1, an economy forum for Croatian diaspora will take place in Zagreb. The five day event, organized by FORUM Zagreb Congress Center, will be held under the auspices of the State Office for Croats Abroad in state institutions and in the same venue.

The mission of MEETING G2.1 is to help revitalize economy by gathering successful entrepreneurs, Croatian business people from abroad and entrepreneurs / project starters from the homeland. Successful representatives of second generation emigrants (G2) will be introduced to opportunities for economy investment in Croatia, while domestic entrepreneurs, employers and innovators will share the best international practices and meet successful Croatians from the entire world.

I wonder why anyone would want to take a high risk starting a new venture in Croatia.
Are tax incentives and free EU money enough?


IMHO: It does not matter how much EU money you get or how nice the tax incentives are if the political and business environment is toxic - where rule of law is low (dependent on your political affiliations and donations) and trust in the business eco-system and business partners is low.



Bench-marking against other nations shows that Croatia is very business-unfriendly:


The most embarrassing assessment is that Croatians are actually proud to be #33 in Tourism Competitiveness! Tourism is one of the most important sectors of the economy and Croatia is #33 out of 141 countries according to "The Travel & Tourism Competitiveness Index Ranking 2015"


Coming to Croatia

"Coming home" to Croatia sounds romantic and adventurous but setting up a business is risky.

  1. You do not know the bureaucracy
  2. You do not know who can be trusted
  3. You do not know the market

Worst of all there are con-artists that want to take advantage of returnees. It seems that to some Homeland Croats it is a mark of prestige to outsmart and swindle naive and gullible Diaspora Croats.


Having a local partner that can help you:
  • learn what you need to know
  • move through the system
  • get you connected with trustworthy partners
  • provide services at lower resulting from economies of scale

... can all minimize the risk of setting up a successful business.
It is in no-one's interest to have new venture fail.

Obviously, having a new-venture friendly government and bureaucracy is needed also.
Croatia is very business unfriendly - even toxic.

Q: Do we have any investment banks such as Masterkey Holdings of Bangalore India?



Learning from Mexico

Mexico has 50 years of experience in attracting American and Canadian businesses.
What can we learn from Mexico?


The Mexican federal government, as well as state governments, are very active in attracting foreign direct investment in Mexico. The Secretariat of Economy has set up a directorate called ProMéxico and National Council of the Maquiladora and Export Manufacturing Industry (CNIMME) which have set up legal infrastructure for low-risk manufacturing opportunities for small and medium sized manufacturing companies through "Shelter Services" ("empresas albergue" = business hostel) and 4 years of tax freedom.

Update: Companies can now operate under a shelter for up to 8 years


A little bit of history background
Starting in 1964 the maquiladora program brought American industry to Mexico. The 1994 North American Free Trade Agreement and the 2000 "Free Trade Agreement between Mexico and the European Union (FTA EU-MX)" boosted investment. Today, a new trend in Re-Shoring is bringing some manufacturing back to North America from China and Mexico is an attractive location to bring manufacturing to.




An example of success via the shelter program is Fokker Aerostructures setting up a factory, "Fokker opens Mexican facility" in Chihuahua Mexico through the assistance of shelter partner American Industries. Fokker came to Mexico and set up shop with the help of American Industries. One plant became two, two became many and in a few years Fokker was strong enough to set up its own independent shop.



Shelters help new businesses succeed

Shelters are private Mexican businesses that help American, Canadian and European manufacturing companies set up shop in Mexico. Shelter services provider Mo-Mex explains the service this way:

A shelter plan is essentially an out-sourcing program, in which a shelter operator provides a manufacturing facility, workers and administrative support for the manufacturing operations of a client. The basic idea is for the shelter operator to provide all of the Mexican resources which the operation requires and for the client to provide the machinery, equipment, raw materials, components and know-how required to produce the client's products.

By setting up operations in a shelter, the client is relieved of the tasks and risks of finding or building a facility, hiring workers, dealing with Mexican labor unions, moving goods in and out of Mexico, insuring compliance with Mexican labor, tax, environmental and customs laws, purchasing goods and services in Mexico, and performing other administrative tasks, many of them unfamiliar, in a foreign country, with laws and regulations written in Spanish.

By using our Mo-Mex Shelter Plan, our clients avoid creating a legal presence in Mexico. That can result in substantial cost savings and avoids many headaches. Because we pay Mexican vendors, our shelter clients do not even have to open a Mexican bank account. Shelter Plan clients are exepmt from Mexican income taxes during the first four years of operations.

Onilog says of shelter services

Under the typical shelter arrangement, manufacturers send raw materials and supervisory personnel to train and manage workers, while the shelter company performs the tasks and functions that are not “core” to the manufacturing process. The manufacturer controls those areas that affect profitability and sustained growth. This is a value-added outsourcing arrangement in that it gives manufacturers a means by which to greater leverage core competencies and intellectual assets. An organization that does this becomes more nimble, and experiences faster and higher levels of innovation. Additionally this arrangement is attractive to firms seeking to pursue strategies of leveraged growth.

Onilog’s Shelter program also provides your company:

  • Process of environmental permits and licenses.
  • Payroll management and disbursement.
  • Human Resources; hiring, training, management.
  • Facilities and utilities.
  • Maintenance.
  • Offices and meeting/training rooms.
  • Cafeteria and meal services for personnel.
  • Payment of required taxes (housing tax, social security)
  • Customs and Import/Export permits and documentation.
  • Medical facilities and medical personnel.
  • Maquila and Manufacturing permits and licenses.
  • Personnel transportation to and from facility.

Javid de Mexico says "Don't worry ... be sheltered".

Our Shelter Services- Incubator Programs have a six ( 6 ) month “trial” contract with 60 days notice. The investment or risk is only six (6) months! Once an operation grows beyond incubation, another facility is located and the customer is moved into it. Our customers are also welcomed to stay if growth is not achieved or simply wishes to stay.

  • A Shelter Program is a contractual relationship that gives a company the ability of establishing it's own operation in Mexico the fastest and most economical way possible.
  • The Shelter provider is a company that is already well established, legal and working identity. It is a mature, efficient and successful identity with all the "infrastructure" and people in place. The provider takes in a client under its "umbrella" , gets it started quickly without the hassles associated in starting an operation.
  • The client basically becomes a department of the Shelter, taking advantage of the infrastructure and talent already in place. The Shelter provides support and "protection" to its clients during the length of the contract, treating the client as its own .
  • After the terms of the contract are up, usually 2-3 years. The client is well prepared to go on its own with the full assistance of the Shelter provider.
  • A Shelter Program allows a company to quickly operate as a mature, efficient and successful business without having had to spend the years of time and effort to accomplish the same level of proficiency it would have had on its own.


Off-shore Group gives start-up timelines as follows (whole process often completed in 90 days)
  1. The first phase of the project consists of Mexico manufacturing facility construction (4 - 6 months) or Lease property improvements (30 – 60 days).
  2. The second phase consists of putting together the staffing that will enable production to occur... can be achieved in 30 – 60 days.
  3. The third phase in initiating Mexico manufacturing operations is the formation of the supply chain... typically last for a period of 30 - 90 days
  4. The fourth step that must be addressed to begin manufacturing in Mexico is the actual production start-up phase. With experienced assistance, this stage of the Mexican manufacturing project can occur within 60 – 90 days.


Shelter provider DIMSA , which provides shelter and business process outsourcing (BPO) illustrates the division of responsibilities this way:




The Mexicans are doing something right! They have stolen hundreds of thousands of jobs from Canada and the USA. There are many success stories in the shelter services industry.

What can Croatia learn?
Can Croatia emulate anything from the Mexican business shelter services industry?





Sources:
Maquila busca a empresas pequeńas
ProMéxico promoverá maquila mexicana
Maquiladora Shelter Firm Thrives (1991)

Shelter providers in Mexico

American Industries
ASER
Co-Production
Collectron
DIMSA
Entrada
International Assembly Inc
IAMSA Development Group
Intermex
Ivemsa
Javid de Mexico
Grupo Prodensa
Made in Mexico
Mexico Services Group
MFI International
Mo-Mex
North American Production Sharing
Off Shore Group
Offshore Promotions
Onilog
SoftLanding Group
TACNA
TECMA

AMPIP - Mexican Association of Industrial Parks

Doing Business in Mexico - Ernst& Young 2015

Books
CEO Guide to Doing Business in Mexico
Doing Business in Mexico: A Practical Guide
Assembling for Development: The Maquila Industry in Mexico and the United States

Updated 7th-April-2016 at 06:02 PM by Željko Zidarić

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Željko Zidarić

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