Location, location, location: local expertise is the key when setting up shop in Mexico.

Mexico's improved transportation sector and infrastructure can make your business more efficient. An industrial park, for instance, is an easy way to get a manufacturing plant up and running in Mexico by minimizing risks and reducing overhead. A new port in Mexico can expedite trade with the United States and Asta. Last, freight forwarding companies provide door-to-door service to clients, managing customs, delivery, warehousing and all services related to cargo.

**********

Setting up a manufacturing plant in Mexico is a daunting undertaking. You need time, energy, and patience--as well as a considerable amount of local expertise.

[ILLUSTRATION OMITTED]

Your first research project involves finding the best city in which to locate. Once that choice is made, you have the time-consuming chore of finding, negotiating, and buying the property. During this process, you must be alert for possible surprises, such as labor restrictions, environmental caveats, even the possibility of a land dispute.

Now you're ready to confront the red tape and delays involved in securing permits from three levels of government, first to build, then to bring in the required infrastructure services, and finally to operate.

There is a short cut, however.

Even if your long-term plans call for building your own plant, you can wet your feet by setting up shop at an industrial park.

With a medium-term commitment of three to five years, you'll learn whether your Mexican venture is likely to succeed before you take on the long-term risks inherent in construction and real estate investment.

Then you can build your plant or exercise a buy option at your industrial park location. By choosing this route, you'll dramatically shorten the time needed to start production.

A Helping Hand

Of course, you still have to find the right industrial park, but that's where the national association of industrial parks, Asociacion Mexicana de Parques Industriales Privados, or AMPIP, comes into the picture.

For the past 30 years, AMPIP has helped companies pinpoint locations that best meet their needs, cut the time needed to get into production, and reduce risk.

"Going through an industrial park makes your life easier in many, many ways," said Rafael J. McCadden, AMPIP's executive director. "One of them of course is that you don't necessarily purchase land ... and you don't have to worry about all the services and infrastructure."

[ILLUSTRATION OMITTED]

"Some companies say they have to be in a city of at least 500,000," he continued. "How are they going to ship out? What is their timing for that? So, there are a lot of issues and we go through all those issues with them, and we suggest at least three different locations. We suggest they go there, and we help them out with their agenda when they go out to see what the city has to offer."

AMPIP also helps companies sift through the maquiladora incentives, as well as other come-ons offered by state or municipal governments, such as training incentives and various types of tax breaks.

Reducing Overhead

McCadden's training and experience enable him to help you spot opportunities, and to identify and overcome roadblocks while setting up in Mexico. A Certified Public Accountant and an MBA graduate from ITAM University in Mexico City, he worked in real estate in Mexico and in several U.S. cities before joining AMPIP eight years ago.

But isn't the industrial park route a costly way to go?

"Sometimes people make the mistake of thinking that the land inside the industrial park is expensive," said McCadden.

"Well, it might seem expensive when you start looking around, but when you go through the fully loaded costs of having to do a lot of things on your own, having to bring in the electricity, pay for the permit for the water, and pay for bringing in Information Technology (IT) ... it turns out that it's less expensive to go through an industrial park--and it's less time-consuming."

McCadden estimates that, with industrial park land typically going for US$20 to US$30 dollars per square meter, a buyer would have to get his land for US$8 to US$10 dollars even to come close to the cost advantage offered by an industrial park.

"We take care of tax, administration, and government regulation issues," said McCadden. "That leaves you free to take care of production and marketing."

Industrial parks can be less risky, too.

"If you're outside an industrial park, you might have problems with the environmental issues," said McCadden.

"One of the things that has happened to companies that start operations on a green field (land outside of an industrial park) is that the surrounding land is vacant, but then the city starts growing into the industrial site. They start putting up schools, and start putting housing around it. Then they start complaining that the factory has to move out ... and if you're inside an industrial park, that's not ever going to happen, because you have the adequate permits and you have the piece of land. It's just part of a master plan for the city."

Furthermore, most industrial parks are strategically located near suppliers or markets and, in many cases, universities, a good labor pool, and even industrial clusters.

Free Of Charge

It gets better: AMPIP does not charge for its services. Financed almost entirely from membership fees, its work with clients is part of a strategy to increase the occupancy rates of its members.

"When it comes to potential investors, we don't charge anything for the services that we provide," said McCadden. "All the assessment, all the information that we provide, everything is for free."

There's another advantage working through AMPIP. With 155 member parks spread throughout the nation, AMPIP is free from the constraints of state industrial development officers, who are confined to one state.

Many Mexican states have just one major industrial center. Their economic development officers may be tempted to encourage companies to build in a small community even though the need for good transport links and infrastructure dictates a central location.

Plus, small communities often lack the local amenities senior on-site staff is likely to want.

"They (the state governments) want to promote development in other regions, and sometimes they overdo it," said McCadden. "We don't care where you locate, as long as you succeed."

Logistical Advantages

Access to Information Technology is a growing priority for industrial park tenants, especially in the age of just-in-time delivery, and AMPIP members take it seriously.

"Information Technology is very, very big in Industrial Parks," said McCadden. "A very important comparative advantage for Mexico as a country to attract investment, and to attract manufacturing companies, is proximity. How can we take advantage of that proximity to the U.S.? "Through logistics, and logistics has to do with IT. You need wideband, you need redundancy on all your systems. More and more purchase orders and all the traffic of trade goes through the Internet, so industrial parks have not only electrical redundancy, most of them have IT redundancy."

An alternative option for setting up in Mexico is a joint venture or strategic alliance. This solution looks attractive because it can provide rapid, inexpensive entry into the Mexican market, and maybe even a plant location. But sadly, few joint ventures turn out to be successful in the long run, because the long-term goals of Mexican and U.S. companies seldom converge.

[ILLUSTRATION OMITTED]

"To be honest, joint ventures are rarely successful, even if the short-term interests match," said McCadden, calling on his experience working in real estate on both sides of the border. "I can assure you that foreign companies' priorities rarely match their Mexican partners' priorities."

Win-Win Proposition

For companies that want to harness AMPIP's resources to locate a plant site, AMPIP will first give the company a questionnaire enabling its officers to match needs with site availability, and to prepare a short list of prospects.

AMPIP members have an ISO-9000 regulation that specifies the standards of infrastructure that an industrial park should provide, so you will find most of the services you need are already in place, other than any unusual requirements your processes may require.

AMPIP started out with mostly Mexican members, but growing numbers of foreigners have joined in recent years.

"More and more, we're getting U.S. companies and U.S. interests being part of AMPIP," said McCadden. "One reason for that is that a lot of investment or retirement funds have moved into the Mexican market and they have been very interested in what Mexico has to offer because capitalization rates are more interesting right now in Mexico than in the U.S.... There are a lot of new players in the industrial real estate market now."

Mexico will always have its advantage of geography, but to fully capitalize on that advantage in the face of intense global competition, it must provide both foreign and domestic industry with infrastructure and logistics enabling companies to fill orders on a quick turnaround basis, or even a just-in-time product flow.

It does this by requiring its members to meet high standards of internal infrastructure and coordinating it with the government-financed external infrastructure located nearby. AMPIP has evolved to help companies find the location in Mexico allowing them to do just that.

Kenneth Emmond ([e-mail]) is a journalist and economist who has lived and worked in Mexico since 1995.

RELATED ARTICLE: West Coast Shipping Congestion: a Mexican Opportunity

The ongoing problems with port congestion on the United States West Coast and Mexico's built-in transport advantage over its Asian competitors could give this country a big economic shot in the arm, says a U.S.-based logistics specialist.

"Mexico has an opportunity to offer the United States warehouse and distribution functions ... if it can get hold of its security and border-crossing issues," said Curtis Spencer.

Spencer is president of IMS Worldwide, a Houston-based Foreign Trade Zone (FTZ) consulting firm. Spencer's company has completed more than 185 FTZ projects worldwide since it opened its doors 25 years ago.

He sees the potential for a major role for Mexico's Pacific port at Lazaro Cardenas as an important new hub for warehousing and distribution of goods ultimately destined for the U.S.

This opportunity has opened up because there is no apparent and in sight to the massive back-up of containers entering the U.S. through West Coast ports.

There are two reasons for increased congestion. One is the slowdown of port traffic due to post-9/11 security regulations and inspection procedures. The transport industry fears this problem will get worse before it gets better because it foresees that even tighter rules may yet be imposed.

[ILLUSTRATION OMITTED]

The other is the dramatic growth in the volume of goods imported from Asia, especially China. The West Coast now receives more than half of all U.S. imports, and two-thirds of these goods move inland.

The result: it now takes an average of six to eight days for a container to clear customs and move on to its destination.

The delays are an ongoing headache for just-in-time suppliers from overseas, but Spencer believes they could be a boon for the Mexican port system.

The port of Lazaro Cardenas has the potential to take pressure off the ports of Los Angeles and San Diego. Spencer noted that Houston is 2,700 miles from Los Angeles by rail but only 2,100 miles from Lazaro Cardenas. The distance from Lazaro Cardenas to Chicago is 3,700 rail miles, just 200 miles more than from Los Angeles.

A smaller but still significant option is to move goods overland to the Gulf ports of Veracruz and Altamira for shipment by sea to Houston or New Orleans.

Clearly, there are problems to be solved at the Mexico-U.S. border but the payoff could be handsome.

There's more. Spencer is convinced that, apart from the potential utilization of raw port facilities, Mexico has a further opportunity to create jobs and value-added services while helping overseas suppliers.

For this to happen, he said, Mexico needs to position itself as an assembly point for imported overseas goods. However, to achieve this it must start looking upon China and other Asian exporters more as business partners and less as competitors.

Here's why.

Mexico can improve the efficiency of these exporters by performing the final assembly of many of their export products here. Many exported goods, especially appliances, plumbing products and supplies, and some kitchen products, are bulky.

As Spencer puts it, "VCRs, washing machines, clothes dryers, and refrigerators are in large part boxes of air." The solution is to ship the parts across the Pacific and then assemble them in Mexico before moving them on to their final destination.

There's another advantage. Many of these goods could actually be imported in the U.S. duty-free under North American Free Trade Association (NAFTA) country of origin rules, he said. This would allow exporting countries to increase their volume of exports by skirting tariffs and quotas.

This is already happening for textile goods from South Korea that pass through Guatemala en route to the U.S. South Korea faces strict quotas for exporting its textiles to the U.S., Spencer said. So, it sends the cloth to Guatemala, a country with generous textile quotas and low wages. There the clothing is made ready for the consumer and then exported as Guatemalan goods under country of origin rules.

To work with Chinese companies, Spencer said, Mexico doesn't need to change its policies or sign a free trade agreement. In some cases it may be able to operate under the existing maquiladora program; in others it can establish strategically-located Foreign Trade Zones. The parts would arrive duty-free and move out as export-ready products.

To date, Mexico has just one Foreign Trade Zone, in San Luis Potosi, though several states are considering establishing one.

To sum up, Mexico can be a focal point of hemispheric trade under which everybody wins--the exporting countries in Asia, Mexico's ports and its labor force, and U.S. consumers and importers who require just-in-time arrivals.

If Mexico can find a way to deal with its own border congestion so that goods move through more efficiently, it can use its West Coast ports to handle goods destined for the United States.

And, if it works with Asian firms through maquiladoras or Foreign Trade Zones, it can enhance its position as a location to inject value-added to products en route to the United States markets, thereby converting China from a trade competitor into an ally, at least in some manufacturing sectors.

--Kenneth Emmond

RELATED ARTICLE: Freight forwarding secrets

For flawless service, go with the experts

International freight forwarding in Mexico has undergone a revolution since 1976, the year Luis Frias started his company, Transport Action.

At the basic level, freight forwarding is just what it says it is: shepherding freight from a point of origin to its destination on behalf of a client. The freight forwarder is a transport specialist who takes care of the paperwork and finds the best rates available for his client.

He ensures the cargo arrives at its destination at the time agreed upon between the exporter and his customer, something that is even more critical in this age of just-in-time manufacturing processes.

To compete in today's market, Frias says, Transport Action must do much more than take care of shipping. It must offer a complete package of door-to-door services, including a gamut of services once the cargo arrives at a port: arranging for intermodal transport inland; warehousing; break-bulk; delivery to the final consignee or, as is often the case for wholesalers, consignees; in-bond delivery to customers; and even customs clearance.

"Customers are used to having a complete service," said Frias, revealing his penchant for understatement.

One of Frias' German customers, for example, regularly sends shipments of electrical appliances to Mexico. Transport Action sees that the goods clear customs in Veracruz and moves them in-bond to a Mexico City warehouse. Then it arranges the final deliveries to retailers throughout the country according to the customer's instructions.

Expertly Moving Cargo

Back in the 70s, freight forwarding was almost unknown as a specialist's service here. Transport Action was only the third Mexican company to register under the rules.

Today freight forwarding is a deregulated service and, Frias said, "Almost anyone can become a freight forwarder."

This means he must compete on the basis of accumulated knowledge and experience and the breadth of services offered, as well as price.

In the early days, the company focused entirely on air freight, but today ocean freight comprises about 40 percent of its business. As a result, Transport Action has opened offices in the ports of Veracruz and Manzanillo.

Transport Action is responsible for the entire movement of a cargo, but because it has so many services to coordinate, its success depends on its network of business alliances with other service providers.

[ILLUSTRATION OMITTED]

This is true both for foreign customers exporting to this country and in the countries of destination for Mexican exporters. Exports out of the country comprise about one-third of Transport Action's business.

"You have to go with the experts," he said, "but by maintaining complete control, we are providing the best available service in Mexico."

One of the toughest areas to manage is customs services, because the rules are complex and must be followed to the letter. This is especially true for food products and pharmaceuticals.

"You have to know your customer," said Frias.

That's because if the cargo does not conform precisely to the paperwork--if he is not shipping exactly what he says he is, or is trying to slip some contraband into the shipment--the result could be, at best, long delays, and at worst, fines or even imprisonment.

Aiming For Flawless Service

Frias tells a cautionary tale about good intentions gone awry.

One of his long-term customers, a wine shipper from Spain, decided to thank him for good service in the past and, along with his Christmas shipment of wine for Mexico that arrived in November, he included several corkscrews and calendars.

The shipment was red-lighted, which means it was selected for a random inspection. Since the corkscrews and calendars were not included on the list of goods specified in the shipping order, the paperwork did not conform exactly to the shipment. The result: the shipment did not clear customs until February of the following year!

To ensure flawless customs services, Transport Action developed a long-term relationship with customs broker Arturo Barrera of Barrera Sucesores.

Barrera indicated that, like freight forwarding, his service has become much more complex than it was before 1994, when the North American Free Trade Agreement (NAFTA) went into effect.

As with a license to become a notary public, the licenses for customs agents are awarded to individuals rather than to companies.

Before 1994, there were just a handful of licenses granted in Mexico. Today there are more than 1,200. Like Transport Action, Barrera Sucesores saw a post-NAFTA explosion of business but also an explosion of competition.

It's not as easy as it looks to become a customs agent. The licensee must master a maze of regulations and must be able to fit each item to be imported correctly into a generic list of product classifications.

Tariffs vary widely too, depending on whether Mexico has a trade agreement with the exporting country, and how the country of origin rules are applied within each agreement.

A Complex Business

Customers must have full confidence in their customs agents, for there is no room to err.

To guard against false documents that might be used by shippers, the customs agents use an international service called ValuNet, which has a data base that enables them to verify the documentation in the country of origin.

"Before 1994, the customs system was very opaque," said Barrera. "Not so today. Now it's very transparent."

Previously, the shipper had full responsibility for the declarations and the documentation.

"Today, the new Customs Law says that the customs agent is responsible for the classification of the merchandise," said Barrera.

He said at present 10 customs agents are in prison as a result of infractions relating to cargo imports.

As security considerations are added to the mix of factors that freight forwarders and customs agents must deal with, the business is likely to become even more complex in years ahead.

--Kenneth Emmond

By Kenneth Emmond