Say Hola! to Mexico

Written by Janet White Bardwell

Kathryn From describes her business as “stable, profitable and able to invest in the future.” But From, president of Bravado Designs Inc., a Toronto-based manufacturer of maternity and nursing bras worn by stylish Hollywood moms such as Angelina Jolie, Jennifer Garner and Sarah Jessica Parker, wouldn’t have said the same thing a few years ago. Despite burgeoning sales, an increasingly high profile and substantial exports to the U.S. and Europe, the cost of manufacturing her products in five factories throughout Toronto — while close by and convenient — was more than Bravado could bear. “The low Canadian dollar previously allowed us to manufacture in Canada, but as the dollar started rising rapidly, we just couldn’t afford it anymore,” says From. “We were starting to run monthly losses. We had to get out of Canada or we would have gone under.”

A colleague suggested Mexico, and after some prudent research, From chose the city of Toluca, an industrial centre less than an hour from Mexico City. “Since most of our business is in North America, having NAFTA-qualified goods is great,” she says. “And it’s closer than Asia — you’re in the next time zone, which makes it much easier to manage. Plus, transport from Mexico to our warehouse in Buffalo is easier; we can do truck and rail combinations, or air if we need to.”

While U.S. companies have been taking advantage of Mexico’s inexpensive labour for more than 30 years, few Canadian companies have followed suit. But the surging loonie is sure to push more domestic manufacturers south of the Rio Grande, where they’ll join a small but successful contingent of Canadian companies using Mexican factories to produce goods for sale across North America and abroad.

For Bravado, there’s no reason to turn back. Since outsourcing production to a Mexican firm in June 2004, Bravado’s manufacturing costs have dropped by 30%. “We started turning a profit the first month we started manufacturing there,” says From.

Although outsourcing is a popular option, owning a Mexican plant was the tack taken by Brushstrokes Fine Art Inc., a producer of fine-art reproductions. Based in Richmond Hill, Ont., the firm has shaved some 50% off its monthly manufacturing costs since opening its own factory in Ciudad Juárez two years ago.

Brushstrokes’ president and CEO Mitchell Wine says Canadians seem to be holding onto a stereotype that Mexico isn’t advanced or that its people lack a work ethic, but that hasn’t been his experience. “They are good people, friendly and almost back to old business values and things done on a handshake,” he says. Also, under NAFTA, Mexican factories can supply goods to the U.S. and Canada without incurring duties or processing fees.

Still, Wine readily admits that Mexico isn’t the cheapest option. “If money’s your only concern, if it’s only about cost to you, then go to China — there’s no cheaper place,” he says. “But when other factors come into play, like quality issues, respect for intellectual property, proximity to the market and proximity for management to visit the facility, that’s when Mexico goes up in value.”

How to get started in Mexico when you don’t know anybody there? Tapping your personal network can be surprisingly effective. From mined her employees’ contacts. “Our director of operations came from an extensive lingerie background and had some contacts there,” she says. “So, that was a great first step for us.” After a visit to Mexico, From signed a contract allowing Bravado to piggyback on a factory that was already manufacturing lingerie for Victoria’s Secret. While Bravado still controls the creation of its product and quality assurance — a staff member visits the Mexican facility every couple of weeks — it buys finished product. “We don’t pay until net 30 days,” says From, “so, from a cash-flow perspective, it has really helped a lot.”

From points out that Mexican companies have made strides — in the apparel industry, at least — towards improving the quality of their work and specializing in smaller production runs. Bravado, for example, is able to produce a line of only 4,000 pieces a month, which would be next to impossible in China.

The fine details of manufacturing in another country, such as securing permits, paperwork, hiring staff and the like can be overwhelming. Enter full-service firms that will take care of every last detail on your behalf, such as El Paso, Tex.- based American Industries Inc., which owns and leases more than seven million sq. ft. of industrial space in Mexico.

Wine hired American Industries to help him launch his Mexico operations and was so happy with the experience that he created Richmond Hill-based North American Industries to help Canadian companies that are interested in manufacturing in Mexico connect with American Industries.

You don’t have to be a big operation to fit into the American Industries system. Some companies start with as little as 15,000 sq. ft. and 20 workers. Brushstrokes started out with 30,000 sq. ft. and 30 workers; today, it leases 72,000 sq. ft. and employs 100.

No doubt, manufacturing in Mexico is best suited to companies that require unskilled labour, because securing specific expertise can be a challenge. “Finding technical personnel to engineer and maintain manufacturing equipment can be difficult,” says Nick Orlando, president and CFO of Vaughan, Ont.-based Martinrea International Inc., a fluid system and metal-forming supplier to major car manufacturers. It has factories in autoparts meccas such as Hermosillo, Ramos Arizpe and Saltillo. “Progress is being made, but given the number of manufacturers setting up in Mexico, the supply of technical personnel is not sufficient for the demand. Manufacturers must work with the Mexican government to develop this,” says Orlando. “In the meantime, we use our internal apprenticeship programs to develop people.”

From says Bravado works hard at monitoring the quality of work being done in the Toluca plant and has seen a lot of improvement over the years. And while there has been a bit of a language barrier to overcome, From has no regrets. “Mexico for us has been a first step,” she says. “A way for us to get our feet wet close enough to home to ensure quality, yet taking advantage of cheaper prices.”

Originally appeared on PROFITguide.com