Can Mexico Save Your Supply Chain?
Many manufacturers and industrial operations are facing a number of disruptions. There’s workforce disruption, technological disruption, consumer disruption, and supply chain disruption. While there are a number of options for mitigating the impact of each, reshoring stands out as a critical way to minimize supply chain interruptions.
In today’s episode, we are joined by Alberto Villarreal, the Founder and managing Director of Nepanoa, who shares how Mexico’s proximity, young workforce, and skilled labor make it the ideal location for manufacturers looking to reshore or localize aspects of their operations or supply chain. .
Join as we discuss:
- What makes Mexico an ideal location for mitigating supply chain disruption
- Common misconceptions about establishing operations in Mexico
- Obstacles you’ll face and ways to overcome them
- How technology helps you get up and running faster
- Results and ROI based other organizations have achieved
Experiencing disruption on the frontline? We can help. Request a demo today.
Check out the full episode below:
Alberto: That tells you that our brains are borderless. That tells you that if you have the right methodology, the right processes in place, with the right people, people can work anywhere in North America. It’s a matter of actually finding them, training them and retaining them.
Josh: We have another insightful, inspirational inspection of a topic that is top of mind for many leaders in the space.
We’re talking today about supply chain and reshoring. Now, in this episode, we’ll be exploring how a particular region of the world is in a prime position to solve some supply chain woes you may be struggling with. From worker demographics, to strategies for establishing operations. You’ll learn why Mexico has significant potential to help you reshore or localize your operations and mitigate disruptions in the supply chain.
Now, of course, as always, these thoughts are not my own. I’m joined by a leader who is passionate about helping businesses transform and expand operations through North America and Latin America. Originally from Monterrey, Mexico, he spent his career working with some of the largest companies to transform various aspects of their business in many different countries. Prior to receiving his MBA from the University of Chicago Booth School of Business, he served as the International Strategic Planning Manager for Heineken Mexico, and eventually found his way into the consulting world where he led major expansion and transformation projects for PwC.
Now leading Nepanoa which guides businesses through everything required to expand throughout Latin America and the United States, please welcome to the show, the founder and Managing Director of Nepanoa, Alberto Villarreal. Welcome, and thank you for being here today. That is the most I will be able to accomplish in Spanish today.
Alberto: Perfect, Josh. I was tempted to continue the conversation in Spanish, your Spanish is great. Two things. Thank you for that introduction. I don’t think my mother would do a better job than you just did. Definitely not my wife. My kids, it depends on the day.
Second of all, thank you for pronouncing my name correctly, Alberto Villarreal. By the way, I also respond to the English pronunciation, which would be Alberto Villareal. I respond to both but it’s a pleasure to be with you today and your audience. Let’s talk about supply chain. Let’s talk about North America. Let’s talk about manufacturing.
Josh: We are, and I’m excited to dig into those topics. I appreciate you calling out the practice that I’ve put into my Spanish. Definitely living here in Texas, being able to speak Spanish comes in handy. My wife is fluent. Sometimes she will fuss at me and you pick up on the words every now and then. One word that comes up pretty frequently is chancla.
Alberto: There you go.
Josh: Just FYI, I know that word well.
Alberto: I hope you good at dodging that.
Josh: A little bit from time to time. We start off each show with the same question, Alberto, what’s your day-to-day look like in your role?
Alberto: That’s a great question. I love my day-to-day. I love my business and I also love my family. Truly, Josh, when COVID happened, I was actually excited to not travel as much as I was traveling before. I do travel a lot, but not as much as I was traveling 2017, 2018, 2019, where I was out of my home about 40 to 44 weeks out of the year.
My day-to-day looks like this, I wake up at 6:00 AM, I immediately work out. I get 30 solid minutes and have a workout. That could be cardio, that could be weightlifting, that could be even stretching. From there, I cook breakfast for my kids who are up by then, then make sure that they are ready for school on time. We drop them at school, which very conveniently and strategically, our school is two blocks away from our home here in Chicago. We walk to school, walk back.
Then 8:45 AM to 9:00 AM, 15 minutes, all of Nepanoa, the 30 people that today make Nepanoa, that work in Nepanoa, we get together every day from 8:45 AM to 9:00 AM. What we do is we review each and every one of the projects that we’re working on. The teams that are working on the projects get two to three minutes to speak about what’s going to happen today. Are there any risks? Are there any issues, and where do I need to be involved to resolve things?
I love this because it accomplishes two things. The first one is everybody gets to see each other on a daily basis. Even though we’re a remote company, we have people in Guadalajara, in Mexico City, in Monterrey, meaning Chicago, we now have people in Austin, in Lyon, as well. We all get to see each other on a daily basis.
Second of all, we get to collaborate, because even if you’re not working on a specific project, you get to listen to what everybody else is working on. You can raise your hand and actually offer help or offer solutions.
From there, I usually have meetings all through the morning, all the way until noon, have a quick bite for lunch, usually even between 15, 20 minutes, and then from there in the afternoon, I focus on each one of the projects. Where are we? What do we need to do? How do we accelerate things move forward? That’s pretty much how my day goes.
Josh: Quite a busy day. One of the things that’s emerged on the show, aside from the industry-specific topics is the importance of having a morning routine, and setting people up for success through the day, because we’re all dealing with the chaos, that’s why we’re conquering chaos together. To really make sure that that happens, you have to have a solid start to the day, a solid foundation.
Alberto: One thing, Josh, but to be successful in the morning, you have to be successful at night. I didn’t get to the latter piece of my day but at the end, I really tend to close down with just reviewing the meetings that I had that day. If I need to send up any follow-up emails, any action items, I send them the night before, but then I write down how the next day’s going to be.
What are the goals for the next day, because to be able to have a good morning, you need to have a good night. Then screens off at least an hour before going to bed. Usually, I sleep about seven hours. The older I get, the more sleep I need. Now I’m at seven hours. That’s how it works out. Usually, I’m in bed by 11:00 PM.
Josh: Well, I can’t seem to function without nine to 12 hours, I’m such a lazy guy.
Alberto: There you go, awesome. [chuckles]
Josh: I’m kidding, to a degree. Well, look, we’re talking today about certain trends in the industry. Let’s get into those topics. We talk very frequently on this show about the challenges that so many manufacturers and industrial operations are facing. There’s workforce disruption, there’s technological disruption, consumer disruption, supply chain disruption, and more.
There’s things that manufacturers can actually do today to build resilience within their operations so that they can adapt to these different points of disruption in an agile manner and continue to delight their customers. We’ve talked very frequently on the show about these different options. What I’m excited today to chat with you about is a solution that we haven’t explored in depth. We’re talking today about how Mexico in particular could very well help North American operations mitigate disruption.
Alberto, you work with a ton of manufacturers looking to reshore or establish operations in Mexico, what factors are driving this?
Alberto: There’s two main factors from the business side that are driving this, and there’s other factors from the people side. Let’s tackle the business side first. Those are two factors that had nothing to do with business which is the unfortunate piece. We as businesses as we adapt to whatever rules are given to us or how the world is changing.
First, let’s talk about the geopolitical issues that we see. You have a trade war between US and China that simply continues and nobody expects it to end anytime soon. That, of course, triggers many issues regarding transparency, regarding working with Chinese and other Asian manufacturers, but more importantly, it impacts the pockets of business owners and of businesses. Now you’re paying tariffs and taxes that before you weren’t paying.
Also, when we look at what’s going on between Russia and Ukraine, it impacts North American business. It impacts manufacturers. Why? Because there’s European suppliers, European partners of American businesses that simply won’t be able to meet the demand that is expected from them in 2023, 2024, and maybe further. Why? Well, because as we know, Russia controls the vast majority of gas in Europe. We have no gas, you have no energy, hence, you can’t comply with the volumes that are expected from you from a supplier perspective. That piece is truly impacting businesses in the United States, in Canada, in Mexico, in North America as a whole.
Now, the second piece is people. Let’s face it, guys, simply, there’s just not enough people for the amount of jobs that we have right now in the United States. We look at the unemployment rate and it’s under 3%. Josh, that’s minuscule. When you look at the types of jobs that are out there, when you look at turnover, all businesses are struggling to find people, to train people, and to be able to retain them for an extended period of time. Those two issues are really impacting business and manufacturing in North America for sure.
Josh: Absolutely. Geopolitical issues and people, I think these are great points. You called out the trade war between China and the US and how that complicates transparency. Meaning, is the product that I am having produced meeting my expectations, or are there any issues that we’re not aware of? Because it’s all about really being able to, like we said previously, quickly adapt and you can’t quickly adapt if you can’t find out about what’s happening very quickly.
Then you called out how it impacts the bottom line. The tariffs are eating into profits. You have certain options. You can try to find ways to lower cost. You can try to find ways to pass costs onto consumers, which will inevitably lead to other complications, we could talk about inflation, and we could talk about a wide variety of situations.
You mentioned Ukraine and Russia, and how in this example Russia controls the gas, as it’s such a major provider of gas, that certain manufacturers and certain operations in the EU can’t get the energy that they need in order to produce. This is a big problem. I’ve talked with plenty of manufacturers about this specific thing.
Then, people. We talk a lot about the retention problem that is seen not just in manufacturing but across all the industries. You bring up such a good point. There are way more job openings than people to fill those job openings, at least within this locale. It’s such an interesting and perfect storm of situation that’s happening that’s really driving different operations to figure out, how can we adapt? I’m really curious to hear from your perspective, why does Mexico stand out as a solution to some of these disruptions?
Alberto: You mentioned it very well, how does Mexico stand as a solution to these disruptions? If we learned anything over the last two and a half years, since the pandemic, yes, February of 2020 is when the pandemic started, it is that you have to, number one, diversify your supply chain, and number two, be able to be close to your suppliers.
Why does Mexico provide a solution here? Let’s start with the geopolitical issues. Number one, Mexico is the best trade partner of the United States. It has been in the past, it continues to be, and it will be in the future. We have an amazing free trade agreement.
USMCA, Josh, is the most advanced free trade agreement of every nation in the world. Every nation in the world would wish to have this agreement between Canada, United States, and Mexico. It facilitates trade across border, it facilitates working in each one of the geographies and more importantly, it brings us together. When we’re looking at geopolitical issues in Ukraine, Russia, the trade war between US and China, that is something that simply doesn’t exist in Mexico.
We can talk about transparency first. In Mexico, USMCA protects your IP. Your IP will be safe. You have no issues of sending the drawings, sending the models and then, next thing you know, you have a knock up in the market. In Mexico, you are protected. Number two, your investments, from a legal perspective, are more protected than they would be in any other nation in the world. There is still commonality between Canada, US, and Mexico to work together when it comes to business.
Now, let’s go to the people. Josh, when you look at Mexico, I think I have this right, the years of age, the average age of Mexican workers is 29 years old. I know it’s between 25 and 30, but I’m giving you the exact number, which is 29. When you look at that, you see a young workforce. Number two, Mexico has graduated more than 350,000 engineers a year, and that number is growing in double digits. It’s in the low tenths. That’s more engineers per capita than India is even graduating. Think about that. We have a workforce that wants to work, that is looking for opportunities.
This last fact, Josh, you’re going to love it. Turnover is 60% less than it is in the United States. I’ve had clients that have an 85%, a 90% turnover rate. That means that if you hire 10 people at the beginning of the year, 9 of them will not be working with you at the end of the year. In Mexico, that number is 60% lower.
When you have this workforce that is looking for jobs, when you see that the retention rate is higher, you have a great opportunity. Plus, you add to that the legal perspective, USMCA protecting you. It only unites North America. That’s what it does.
Josh: Those are some great callouts. I love that you positioned it as transparency. Really, I think what we could call it is security because it’s not only that transparency, but what it’s leading to is the fact that you have protections. You have protections because of the existing agreements between the different nations involved in the agreement, but such a critical callout, the people portion of it, a young workforce that is turning out more engineers than ever before, a young workforce that seems to be consistently sticking with the opportunities that they pursue.
I’m actually curious on that last point. Just from your perspective and expertise, why do you think there is 60% less turnover? What do you think the secret is?
Alberto: Number one, it’s Mexican workforce are used to working internationally. When you look at the manufacturing shops in Mexico, when you look at the industrial landscape in Mexico, you’re going to see a lot of American companies. You’re also going to see European companies. When they get to Mexico, they don’t go for “cheap labor only.” What we need to understand is that Mexico has high quality skilled workers that love their job and that see this as an opportunity of economic mobility. If I work hard in my job for this international company that treats me well, eventually me and my family will be better off.
Mexican workers really value that opportunity and they do consider their job and the people that they work with as their home and family. It’s a cultural thing more than anything else.
Josh: I love how you positioned that. It’s not cheap labor, it’s a very skilled workforce, and it’s a workforce that is looking to grow both professionally, and like you mentioned, personally. I think that’s such a good callout because that’s not uncommon. Most young professionals who join the workforce, they’re looking for similar things. It sounds like there’s just a difference in how they’re finding it.
Alberto: Think about it, the workforce is used to working for international companies, particularly American companies. Believe it or not, my team and someone like me that is living this on a day-to-day basis, we do see the North American way. We do see the commonalities between Canada, United States, and Mexico. It goes beyond just our time zones.
I’ll share an example with you, just a quick one. When NAFTA was put into place in the early ’90s, which is 30 years ago, my dad had an English school called Best. You would think, Josh- and this is in Mexico, this is in Monterrey, Mexico, and you would think that the vast majority of the students at Best were little kids trying to learn English. Yes, there was a fair share of that, but more importantly, they were executives of international companies studying English, and this is early ’90s, guys.
Now, fast forward 30 years, of course, that school doesn’t exist anymore, my dad has retired, but that market doesn’t exist anymore because those executives today, they speak English. They grew up speaking English. They went to schools that spoke English. That tells you that transition that Mexico has experienced from the beginning of NAFTA in the 1990s to today with USMCA where you have a highly skilled workforce that is used to working with North American companies.
Josh: I appreciate that additional context. I think one of the things that I’m pretty interested about with some of the information you shared is the fact that we’re starting to touch on what may relate to some common perceptions, maybe misconceptions about establishing operations in Mexico. I’d love if you could share with us, Alberto, some additional common opinions or perceptions that you’ve encountered about setting up operations in Mexico that you found to be consistently inaccurate, not true, enlighten us here.
Alberto: Sure, Josh. The first one is always around the people. What I mean by this is, Mexico is cheap labor. Yes, it’s going to be less expensive than the United States, and you should expect your labor costs to go down at least 50% when you go to Mexico. Of course, that 50% varies on an industry perspective. With that being said, if it’s compared to China or to other countries in Asia, it’s highly probable that you will not find a workforce that is at the same labor cost as that laborers.
What investors and what businesses sometimes do not realize when they go to Mexico is how highly skilled people are and how good they become at their job. I’ll give you a couple of examples of that. There have been companies, clients of ours, that have taken people from their Mexico operations into the United States to come and transform or to come and make the operations in the United States better based on what they had implemented in Mexico.
That tells you that our brains are borderless, Josh. That tells you that if you have the right methodology, the right processes in place, with the right people, people can work anywhere in North America. It’s a matter of actually finding them, training them and retaining them. That’s the first misconception. It is, we’re going to Mexico because of cheap labor. Yes, it’s less expensive than the United States. I’d never classify it as cheap labor. I classify it as highly skilled labor.
Then the second one, Josh, is the security piece. Unfortunately, what we see in the news it’s always this alarming news about crimes that are committed everywhere in Mexico, and that is not the case. Many times when we bring clients to Mexico, they are immediately surprised by infrastructure. They are immediately surprised that they meet the government, it’s like, oh this is highly qualified people, and they’re immediately surprised about the security that they experienced. That is something very important.
Unfortunately, I think that even TV shows have made it seem that as soon as you get out of the plane, you will be in danger and you need to be aware at all times and that is just not the case. That is not how things work. Mexico is a country that continues to develop itself, but continues to attract foreign indirect investment from many countries in the world, because it’s a place where you can develop your business, develop your brand by finding great people to work there.
Josh: I think those are some great call outs. I am really happy you brought up the idea of security because, like you mentioned, right, wrong, indifferent there is a perception that certain regions of Mexico are unsafe, and to some degree some of that is warranted based off the violence that has happened there. There’s a reason why certain regions appear on the do not travel list.
To what you called out, it’s may not be as prevalent as maybe the media or the different perceptions seem to convey it as. I don’t know if that’s the right word there. I appreciate you calling that out.
Alberto: No, Josh and it’s always a conversation that we need to have. I’m not saying that it doesn’t exist. It is an issue that Mexico continues to work on, but at the same time, personally, I don’t think it is at the level where it should not merit investment into the country or expanding your business into the country. The benefits of expanding into Mexico and the way that you can manage any security risks that you, your business, your assets may face are simply not comparable. The benefits far outweigh any risk that you may find.
Josh: I appreciate you calling that out. I’ve certainly worked firsthand with manufacturers that have their headquarters in Mexico and have had nothing but great experiences going there, walking the factory floor, talking with people, et cetera.
Now, look, let’s talk about the ease of change. No change comes easy. It can sometimes be simple, but it takes dedication and prioritization. Obstacles are going to emerge. The best thing that can be done is for organizations to be prepared to face known obstacles while remaining adaptable and planning for the unknown obstacles.
Alberto, what are the most common obstacles that you’ve seen? Manufacturers who are considering establishing operations in Mexico, what are those obstacles that they most commonly face?
Alberto: The most common obstacle is going to be dealing with what we call Mexico moments. What are Mexico moments? Mexico moments is, you go into the website of the SAT, which is the Mexican IRS, and you look at the timeline of obtaining your signature or making sure that you are registered locally and you see a timeline of two, three, four, five weeks and you think that that time is actually accurate. Mexican moment is it’s not going to take two, three, four, five weeks. There is bureaucracy, there is paperwork that needs to be taken care of.
As long as you’re prepared and you are able to understand that this process is not going to be walk in the park, particularly all the interactions that we have with the government. That one is the most common challenge that I think it’s pretty obvious, but if you have not done it before it’s a matter of speaking to others that have in the past and say, hey what can I do to expedite our permits? It is about always being ready, having more information that the one that they asked in the form or in whatever site that you found online. That is very important.
Then the second piece around Mexico moments that may catch you a little bit off guard is just about international business and it’s cultural. You’re going to laugh about this, Josh, but even today, which is November 2nd, we’re filming this in November 2nd, we’re recording this in November 2nd, in Mexico is the Día de Muertos, it’s the Day of the Dead. There were people not working yesterday. There are people not working today. That is not that common in America. When you have a holiday is usually okay you take that holiday, which is one day. No, in Mexico it’s, hey, you need to explain a little bit more. It’s those little cultural nuances that you need to be prepared.
That’s exactly why we exist, that’s exactly why we manage this expansion projects for our clients, to make sure that we have the least Mexico moments as possible, and when we have them we can foresee them and actually go around them so that we don’t lose traction on the expansion efforts.
Josh: That makes sense from the what obstacles you can expect. We all know that bureaucracy is not just a problem that’s faced in Mexico by any means. Certainly, here in the United States, we’ve got a fair share of bottlenecks and constraints that are purely based on bureaucracy and paperwork. That’s certainly not unique, but it is important to call out and recognize that there can be some delays and some difficulties in getting set up when you’re working with any country’s bureaucracy that might be in place.
Then, very critical observation of the cultural differences really manifesting as holiday differences. I think that’s a great example. Here in the US, we could be much better about holidays. There’s certain holidays that we look upon as the ones that must be off work, but again not everyone gets off of work in those cases. Americans are typically known for working through the holidays or really putting work first, which is certainly the culture that we’ve set up, but not the culture that other groups of people may have in place. Certainly, working with the AMEA region, there’s a lot of different holidays from across the different countries.
Alberto: I mentioned holidays as one thing, but what I meant was the cultural aspects of working in Mexico. That goes into negotiations, that goes into salaries, that even goes into benefits that are given to employees. Given that today’s a holiday, I thought that was a great example, too, because I’m experiencing that with my team right now.
Josh: Shame on me for making you work on a holiday.
Alberto: No, no, no. As a binational company, I work on Mexican holidays because my clients in the US are working. I work on US holidays because my team in Mexico is working. It works out. That’s the cost of being a binational firm.
Josh: When do you take your time off, Alberto? It sounds like–
Alberto: I do take my time off. I took Friday off to be at the Mexico City Grand Prix, Formula 1 grand prix. There you go.
Josh: Okay. I was actually at the Formula 1 here in Austin, Texas, a couple of weekends ago.
Alberto: You had a great race in Austin. Unfortunately, the race in Mexico was not as excited as the one in Austin, but just the atmosphere was amazing. I loved it.
Josh: Absolutely. I think those were interesting, here are obstacles that you might be able to expect and anticipate. Are there any obstacles that come to mind as obstacles that typically tend to blindside organizations?
Alberto: Negotiations. That one is the key. The negotiation culture in Mexico versus the United States is very, very different, and companies should be prepared to negotiate everything when you go down to Mexico. Everything, I mean, everything else, guys. It very rarely will be just a straightforward where it’s like, okay, this is a service, this is the price, boom, and we move on. There will always be some negotiation. That one is the first one.
It goes to companies that are looking to acquire companies in Mexico, because the M&A culture in Mexico is definitely not as developed as it is in the United States. It goes to negotiating a site for your company, even if it’s a building that you’re renting or if you are actually building your own facility, there will be heavy negotiations there.
The other one is the benefits for the people, for your employees. Benefits are different in Mexico, and it is because of the economy, the way that Mexico’s economy works. I’ll give you the best example for this. When it comes to medical expenses, in Mexico, there is the public hospitals and then you have the private hospitals. The higher you go in your career, you expect to migrate from that public health care into private health care. That is something that usually is not taken into account. Those benefits become very important for employees.
When you go into your savings fund, same situation. Mexican workers do value not only salary, but the benefits that come with working at your company. That even goes to coupons for food discounts at a specific supermarkets that goes, as I mentioned, with healthcare, that goes into transportation. Companies have gotten very creative to retain that good workforce in Mexico with the Mexican benefits.
Then the third one is just the law, Josh. Doing business in Mexico is different than doing business in the United States. The most important example there is when you let go someone in Mexico. When you let go of someone in Mexico, there is a severance that goes with it. That severance is, by law, three months of salary plus 18 days for any year that they worked with you. If you let go of an employee that has been working at your company for two years, they will get three months of salary plus 18 days for each one of those years that they worked with you. Of course, there’s other expenses involved in that, which would be vacation days or which would be the Christmas bonus or the holiday bonus that is given by law at the end of the year.
The other example there is profit sharing, which, by law, employees in Mexico should receive a percentage of the profits of the company. Those are the items that you really have to ask, and you really have to– If you come with us, with Nepanoa, we know those in advance. For companies that are going down to Mexico, they’re surprised that, they are blindsided, is like, “Wait, what? I cannot let go of ex-employee and that’s it?” Those situations is good to be aware of.
Josh: Yes, there’s a lot to break down in what you call that negotiation culture, the benefits for the people, what’s written into law. By the way, on that last point, I’m such a big fan of doing what’s right for the people in your employee. I’m a big fan of what I’ve heard.
One of things I want to get your perspective on, you mentioned the negotiation culture. I personally am not a great negotiator. [chuckles] If I could play a montage of failed moments of negotiation, I think it would be quite funny for the listeners but I’d love to hear from you, Alberto, do you have any tips or tricks or best practices when it comes to negotiating in Mexico?
Alberto: Thank you for that question, Josh. Be prepared with different scenarios, but do understand that people in Mexico grew up negotiating. When you go to the store on the street and you get a piece of candy as a kid and a bottle of water, you will hear your dad saying, “Hey, do you have a discount on this?” [chuckles] To the cashier. People just grew up like that.
The advice is always be fair. A fair negotiation will always be a good negotiation, but just be prepared for that banter. It truly depends, Josh, on the transaction that is happening.
We’ve advised companies in acquiring other companies, and there are different negotiation strategies there that go into valuation, that go into quality of earnings, that go into the future of the company that has been acquired, but we’ve also negotiated the lease of a building for one year. We had a client that only wanted a building for one year. There are different elements that go there into place, and you have to take into consideration the market, what’s the demand, and then just walk into the conversation.
The best advice is, be ready to whatever you come with, the other side will try to bring it up, or in this case, if you’re buying something right, bring it up. There will always be a negotiation. We’ll advise you we’ll be there.
Josh: Maybe having some fun with it as well. Negotiation doesn’t have to be all business. It could be pleasure to–
Alberto: Actually, Josh, now that I think about it around negotiation, a great tip is sometimes in America when we walk into a negotiation, we walk straight into the negotiation. You shake hands, you sit down, okay, this is a topic at hand and we walk directly into negotiation. It doesn’t happen like that in Mexico. I actually think it’s better.
In Mexico, before negotiation, you may even go to lunch together. You may go to dinner the night before, or if you only have specific time for it, you walk into the office, you shake hands, and you spend solid 15, 20 minutes asking about people’s families, asking about their friends, asking about how was the weekend, asking about how their health is, and then you jump into the negotiation.
What we’ve learned is that, just from a cultural perspective, doing that breaks barriers, right? There’s this immediate interpersonal connection with the people that is on the other side of the table and we’ve seen benefits there.
Josh: Just to close the loop on the negotiation topic, I agreed with everything you said. There’s so much more to negotiation than just the showing up to a meeting and talking about what you want and what you don’t want to give up. I would recommend for everyone listening in, Alberto, maybe you’ve read this book. It’s called Never Split the Difference, by Chris Voss, that completely changed my view on negotiating and what is involved in a negotiation. Great book, highly recommended. It really talks about some high stakes because this is from a former head of hostage negotiation. Look at that. For those listening, Alberto has the book and he’s showing it to us on camera.
Chris Voss is a former head of hostage negotiation for FBI. Talk about not having the ability to split the difference. You can’t say, “Okay, you’ve got 10 hostages. We’re not going to give you the 5 million you asked for, we’ll give you 1.2 million and just take three of the hostages.” You can’t do that. You can’t split the difference in that way. He talks about some very successful and pragmatic approaches to successfully negotiating, which I think would really complement, Alberto, the advice that you gave here today.
Now, you touched a little bit on this. Aside from being aware of these obstacles, how can manufacturers ensure things go as smoothly and as quickly as possible?
Alberto: Number one is to plan, but number two is to seek for advice. Your Mexico partners will be as important as your businesses. When I mentioned Mexico partners, we’re talking about tax advisors, we’re talking about attorneys, we’re talking about companies like mine, Nepanoa, that can really guide you in every step of the way.
As North American as Mexico is, it’s still a different country, and it will have nuances like the ones that we’ve discussed today, and the most important piece is be prepared, know the road, know the right people, have a great network and actually, keep steaming ahead. Make the Mexico expansion a priority. That to me is the key to success.
Josh: A notable number of customers that we’ve worked with here at Parsable who have launched operations, not just in Mexico, but it could be setting up a new shop in the United States or somewhere in Europe, one of the things that we’ve seen to be particularly powerful is technology. I’d love to hear from you, Alberto, how does technology help speed up the process of launching operations, particularly in Mexico?
Alberto: From a technology perspective, it’s always a component that needs to be spoken about when you’re expanding operations. I’ll give you an example of a company that is a client of Nepanoa that is stuck right now in their expansion because they decided, which is the right decision, to change their ERP globally. Well, the Mexico expansion is paused until their global implementation of their ERP gets to Mexico. This comes back to the importance of considering technology in your expansion.
Operating in Mexico will have different inventory laws. You will have to file– If you are actually a maquiladora, if you are under the IMMEX program, for those of you that don’t know a maquiladora program is specific certifications that a foreign company or a Mexican company could get to ensure that everything that goes into that company and it is transformed and goes back into the United States. Nothing is sold anywhere else in the world but in the United States. Materials come in, transformed and they go out.
If you’re operating under that program, you will have to apply for an IMMEX, obtain an IMMEX, and obtain the benefits of it. You will have to comply with the IMMEX. That includes on a monthly report called the Annex 24. There’s specific technology for that. You need to make sure that it’s part of your expansion.
As I mentioned in the example before, well, if you’re going to be making any changes to your technology locally or globally, well make sure that that also happens in Mexico. Make sure that your operation in Mexico or anywhere in the world, that you’re able to integrate it to whatever you’re using in the United States. You can do that via natural integrations.
You can do that via reports, you can do that via APIs. There’s many different ways of doing it, but there is always a technology component into an expansion that needs to be considered, and many times companies ignore it.
Josh, it even goes to something as simple as, hey, as we’re building our new facility in Mexico, are we considering internet? Are we considering Wi-Fi? What do we want? Those are the details that we see. Those are the things that we need to plan beforehand and make sure that everybody is involved.
Josh: Something in addition to what you just called out, you previously mentioned when talking about the people, and setting people up for success, how important the focus is on methodologies, processes, making sure that they are enabled to do their job well. That’s one of the things that really resonates with us here at Parsable, is how can you make sure that the people that you’re asking to do the work are able to get the information they need right when they need it, so that they can take the action, like those who are experienced and have been doing this for 10 years, 20 years, 30 years?
It’s very difficult to do that without the right technology in place. There has to be an element of digital information that can help people upskill in the moment, learn how to perform a particular task in a way that spans across language barriers. Very visual, very hands-on, and a way of providing feedback as well as, like I said, just the information that’s needed when it’s needed. Certainly seeing firsthand the power of tech in getting started.
Alberto: I love what you just mentioned. I love what you guys do at Parsable as well. I would encourage businesses to actually try new things and explore as they’re expanding. Take advantage of the fact that you are starting a new operation or you’re expanding your current operation in a different country and use that opportunity, that transformation opportunity, that growth opportunity to actually test new technologies and to upgrade to whatever you’re using and perhaps then bring it back to your current operations.
We’ve seen that happen where this is an expansion, it’s a new facility, we get new machines, we get the opportunity to train new people. Well, guess what? We’re going to also implement new technology across our line of production and test it out and make sure that it works, so that then we can use it worldwide.
Josh: That’s such a good point that you can start in one location and have a solution that really was prioritized in a specific issue that was experienced in one region, but take those results elsewhere. One of the things that we’ve seen is, a lot of times this is– this is going to be the most generic statement ever, but there are a ton of variables that impact results.
That could be anything from the level of experience of the people who are operating in the day-to-day. It could be differences in the machinery that you are using to produce the same product. It could be differences in the raw materials that you’re able to get from the surrounding region. It’s important that leaders be equipped with the ability to understand what these variables are so that they can measure it and start to manage it.
Alberto: To that point, I was at IMTS about a month ago here in Chicago, walking the floor with a group of investors, and I was amazed, number one, by the number of technology companies that are up and coming and in the manufacturing space.
Number two, I was also very intrigued because among the investors and the conversations that we were having, and this were not Mexican investors, there was always a question to companies about “What are you doing with North America?” Or, “When are you going to Canada?” “When are you going to Mexico?” That’s a conversation that was not happening before.
I was very encouraged by those conversations where it was, “Hey, this is what my technology does. It helps you budget better.” Or, “It helps you perform tests faster or identify air bubbles in a rotomolded piece or whatever.” The conversation always was, “Okay, as we’re doing this in the United States, when are we going for other markets?”
When it comes to technology, Josh, really, it’s quite easy to expand into other locations. If it’s an issue with the language, it’s a matter of changing the language, like changing the user interphase, but the technology, what’s behind that, it really doesn’t change and it helps.
I was just very encouraged by the conversations that we were having about the region and technology in manufacturing.
Josh: That is exciting. Clearly, people are recognizing the potential and the power. Now, the results are always going to be the proof that drives the change. It’s one thing for us to discuss or ideate on different solutions, but the real motivator is going to be the impact, otherwise, change is going to be resisted at every corner. I’d love to hear from you, what kind of results can manufacturers have by reshoring or establishing operations in Mexico?
Alberto: The first one is, there hasn’t been a single client of Nepanoa that has ever shut down their operations in the United States and take them and took them to Mexico. Not one. The conversation is always about expansion. The conversation is about having what we have in the United States and expand into Mexico, or having what they have in the United States and close operations that are farther away, that perhaps are in countries that at this moment are not necessarily allies of the United States, let’s call it China, for example. It’s shutting down those operations and bringing them to Mexico. I want to leave that very clear as we talk about the benefits of expansion.
The second one is, companies have increased their output dramatically. We’re talking about– That one truly depends on how ambitious the company that is going to Mexico will go.
In the years that we have been operating, we have not had a single company that has gone to Mexico and not immediately doubled their output. Of course, increased their time to market.
Then the third one, which is very tangible, is we’ve had three transactions, Josh, and what I mean, transactions is businesses that have sold their operation in the United States and in Mexico after we have helped them set up in Mexico. The one that sold where the valuation increased the least, it was five times their initial valuation. When they were in the United States before going into Mexico, they were worth X, after going into Mexico, it was 5X, and then the other ones goes five, six, and seven. It’s almost like a story, but it’s at least five.
Why? Because the companies are proving that they can work internationally. The companies are proving that they have an increased output. These businesses have proven that they’re getting to their clients faster. That’s because of the Mexico expansion.
Josh: Really compelling concepts there. Doubling output, faster time to market, increases in valuation. Those are all pretty compelling results. It’s exciting to hear that you’ve got experience and have seen firsthand this come to fruition. Now, I’m curious, are there certain types of products or verticals of manufacturing that would benefit most from setting up operations in Mexico?
Alberto: From an industry perspective, we know, Josh, automotive industry is very big in Mexico. Aerospace industry is very big in Mexico. I’m going to take it a little bit a step lower. We’re truly talking about metals, we’re talking about steel, and we’re also talking about plastics. When we say, “Well, plastics is usually dominated by Asia,” well, think about products that require a little bit more technical knowledge to be able to be done.
Those are the two industries that we see a lot of movement. Metals, heavily protected by USMCA. When you have– The metals, when they’re manufactured in North America, just the benefits of importing them from any other part of the world, it just makes it just not cost effective. You want it between Canada, the United States and Mexico. Then from a plastics perspective, just think of all the consumer goods. You want to make sure that you bring those back to this side of the world. That’s where we have helped most of our clients in those two industries.
Now, with that being said, then they sell into different industries. RVs, auto, aerospace, consumer goods, retail. We’ve had from clients that manufacture coolers to clients that manufacture pieces of airplane engines. Right now we just closed on a client that it’s actually manufacturing mannequins, mannequins for stores, and they’re bringing them back into Mexico. It really runs the gamut. It really does.
Josh: That’s great. I love the specificity there: automotive, aerospace, really digging into metals like steel and then plastics. I wonder if mannequins would be considered part of plastic.
Alberto: That’s textile and plastic material.
Josh: Different material.
Alberto: I’m serious. When you look at the mannequins that this company is manufacturing, and unfortunately, I cannot share the name, it’s plastic that they go together with metals, like the joints are metals, and then you have textiles on top of that.
We’ve also seen movement, Josh, on the MedTech space, where the three countries, US, Mexico and Canada, are working together to make sure that medical products are manufactured in the region.
The governments created a task force, and they’re actually meeting on a monthly basis to make sure that the manufacturing of medical products across the region are the same standard. We go back into the North American way. We go back into Canada, United States and Mexico, where we make sure that the standards of medical products in particular are at the same standard. That will enable companies to come back into the United States and Mexico and manufacture pieces here.
Josh: Love it. This has been such a great conversation, Alberto. I really appreciate you taking the time to share your expertise and your experience with us. We talked a little bit about Nepanoa, but I’d love for you to share with us how Nepanoa can help companies tap into the potential power of Mexican manufacturing.
Alberto: Thank you very much, Josh, for the opportunity to speak. Nepanoa means to accompany, to be a companion. That’s what it means. It’s a verb in Nahuatl. Nahuatl was the language of the Aztecs. The Aztecs was the most important civilization in the pre-Columbian era. The reason that I clarify the meaning of our name is because that is exactly what we do. Our mission is to accompany businesses in expansion, transformation, and operation set up projects in Mexico and Latin America.
When we talk about those three things, expansion, transformation, and operation setup, those are very, very wide. What we do is we will become an accelerator of our clients so that they can focus on manufacturing, they can focus on their business while we take care of their Mexico expansion. We will become their sourcing team if what they’re looking for is specific partners for parts or finished products in Mexico and in Latin America. We become their transformation team if they already are operating in Mexico and America and need to, as we discussed earlier, Josh, implement a new system. Do an organizational restructure, comply with the new regulations. Those fall under our transformation arm.
In a nutshell, we become the business’ Mexico team for any change their expansion that they would like to implement. We are their companion as an intercessor.
Josh: Like you mentioned earlier, one of the best ways to avoid some of the obstacles that are most commonly encountered is partnering with an expert. It certainly sounds like there’s expertise at Nepanoa that really can help people get started quickly. How can our listeners continue the conversation with you.
Alberto: Josh, we’re available on every platform. You can go into our LinkedIn, Nepanoa, you can look me directly on LinkedIn, there’s not many Alberto Villarreal working at Nepanoa. You can find us on Twitter as well as Nepanoa Advisory. You can find me on Twitter as Beto Villarreal. Beto, guys, is short for Alberto, B-E-T-O Villarreal. You can also find us on Instagram as well as Nepanoa and myself as Beto Villarreal. Everything’s open, feel free to send us a note. If you want an email, that would be firstname.lastname@example.org, or you can just shoot me an email directly, it’s Alberto@nepanoa.com.
Happy to have conversations, discuss ideas, and even if we cannot help, I can, of course, refer you to somebody that will. We have plenty of connections in Mexico, plenty of connections, but we have no commitments to anybody, we have commitments to our clients, so I’ll be happy to recommend you someone to work with.
Josh: Thank you so much for that, Alberto, and thank you for joining us today.
Alberto: Josh, it has been a pleasure. Thank you very much for the opportunity, and thank you to your audience for listening.Listen to find out how Mexico could help you re-shore or localize operations!