The Manufacturing Executive
The Manufacturing Executive

Episode 128 · 2 weeks ago

Ally shoring: Expanding manufacturing operations into Mexico

ABOUT THIS EPISODE

Our guest in this episode knows both sides of the US/Mexico border very well and provides insights into a term he calls “ally shoring” – the opportunity for US manufacturers to expand manufacturing operations across the southern border.

Listen in as Founder and Managing Director of Nepanoa, Alberto Villarreal, talks about:

  • What ally shoring means and how it compares to offshoring across seas
  • The benefits for American manufacturers when they're opening facilities in Mexico or other Latin American countries
  • The most significant barriers that manufacturing organizations tend to run into when they're expanding their operations into international territory

So both from a commercial perspective, but also from our operational perspective, there is new reason why any company shouldn't consider our region as a whole. We have a great agreement in U s m c A that not many companies are taking advantage of. Welcome to the Manufacturing Executive Podcast, where we explore the strategies and experiences that are driving mid size manufacturers forward. Here you'll discover new insights from passionate manufacturing leaders who have compelling stories to share about their successes and struggles. And you'll learn from B two B sales and marketing experts about how to apply actionable business development strategies inside your business. Let's get into the show. Welcome to another episode of the Manufacturing Executive Podcast. I'm Joe Sullivan, your host and the co founder of the industrial marketing agency Guerilla seventy six, where we help B two B manufacturers grow through revenue focused marketing programs. We all know what off shoring means, and in recent years we've begun to hear more and more about re shoring. But what about ally shoring. My guest today knows both sides of the US Mexico border very well and He uses the term ally shoring to describe the opportunity for US based manufacturers to expand their operations across our southern border. Today, he'll talk about the benefits, challenges, workforce demographics, and process associated with ally shoring. Let me introduce him. Alberto Valaril is the founder and managing director of NEPANOA. He is a bicultural professional with the ability to work across borders seamlessly. Over his career, Alberto has collaborated with some of the largest companies in the world in pursuit of transforming their business operations different countries. In doing so, he's had the opportunity to lead engagements related to strategy, technology, finance, mergers and acquisitions, operations, and regulatory compliance. Becoming an expert in international transformation efforts. Alberto founded and EPANOAH with the mission of accompanying multinational businesses through transformation endeavors in the United States and Latin America by providing expert guidance and an unrivaled collaborative experience. NAPANOA began operations in and his resources in Chicago, Mexico City, Guadalajara, and Monterrey. Alberta. Welcome to the show. Joe, thank you very much for having me, and I also appreciate that great intro. I don't think my mom would do a better job. Thank you. Well, I can't say. I can't say I wrote it, so somebody on your team you can. You can go thank as opposed to me, all I had to do was read the script. So well, thank you for that. I appreciate it. And of course I I used the you know, the American guy Midwestern guys version of pronouncing pronouncing your last name. So let's hear you. You actually say your name properly for the rest of us. You. Oh, you did a great job. So my name is Spanish is Alberto. There's a lot of arts in there, so in America it's just Alberto Villareal. I respond to both of them. It works out, you know. It's funny. I took I took Latin in high school, and then because I studied in Italy for a semester in college, I took Italian. So I literally have gone through my whole career without my life without really learning Spanish, and the rolling the tongue skill is not something I have ever picked up. So leaving it to you to to pronounce things correctly for us, so well, loosen a little bit of Italian and as you know, Italian needs a romantic language, and you know there are things that are similar. It's it's easy to learn Italian Spanish. You know that is that is true? That is true, possible. It's good to have you here, Alberto. You know you describe yourself as a bicultural professional with the ability to work...

...across borders seamlessly. Can you kick things off here by explaining what exactly that means and tell us how your own back story has led you into that role. Of course, Oh, thank you very much for asking that question. How many people ask that question. I'm truly by cultural because I was born and raised in Monterrey, Mexico. Monterrey's in the northern part of Mexico. It's an hour away from Texas, very industrial. Many large companies in the United States have operations down there. Think about, for example, all the tortillas that we missim foods at headquarters in Monterrey. Think about Caterpillar, Think about John Dear, think about Mattel Carrier. There's plenty plenty. Point Police goes on and on. Lego has a huge facility in Terrey, as well, so very industrial town, very entrepreneurial town as well. And I was around to always eighteen years old, very stotypical story Joe. I played soccer very well, so and I say, and see how I used the past tense soccer very well. Nowadays that is not the case. But I earned a full right at Georgia State University, and that's how I ended up in America. So pretty much all of my adult life I have been in the United States college, my professional career at a large consulting firm prior to starting Neapanoa Business School, and now at NEPANOA. And that's why I consider myself a by cultural professional because throughout my whole career I have done work in North America, United States, Canada, but also Mexico, Argentina, Colombia, Peru, Brazil, Costa Rica. Right, I've pretty much done projects all over the continent or over this side of the world, and it requires certain skills short experience to do so. Right, It's not the same thing to do a project here in Chicago where I live versus Calli in Colombia, or versus Mexico City, right or sal Paolo in Brazil. So that's what I mean right, you know when I say by cultural ctually in US and Mexico, but it really is all of Latin America and the United States. Great Well, Alberta, I have heard you'd use the term ally shoring as opposed to say off shoring or near shoring. I thought that was that was interesting. I'd love to hear you talk about what ally shoring is all about. Sure, Joe, So two and a half years ago in February, when I launched Napanoa, which by the way, Nepanoah means to a company to be a companion, right, It's suburb in Nagato. Nagato was the language of the Aztecs. Okay, the Aztecs used to live in Mexico City. They were the most important civilization in the pre Columbine era. And that name to us is very important as we accompany businesses through their expansion efforts in Mexican work everything from operations set up to finding the right people or even sourcing right between Mexico, Attam and the United States. So when I mentioned ally shoring, it becomes particularly important, you know. Or the last two and a half three years, as we have seen supply chains become a lot more reach, you know, Right, we had COVID, then after that we have wars, you know, stemming in different places of the world, plus just the political battle between the United States and you know, China and other Asian countries, you know, in which really businesses we need to adapt to whatever is thrown at us from a regulatory or from a political perspective. And it truly is not getting better. Right, We expected it to get better, and it's not getting better. So when we use the term ally shoring, we're referring to bringing your supply chain and working with partners that operate in countries that and that that our allies, right of the United States of North America. Correct. So there's several terms out there. You have near shoring, right, you have some people even use outsourcing, even though it's like you know, in a different in a different country that is super close. But we like the term ally shoring. When you think of the long term of your business, right, you have to diversify your supply chain. You have to have suppliers and different parts of the world, but you want to make...

...sure that those are countries in which you know, us the United States company, you can operate freely right, that there's a legal framework that actually protects your business there, that there is transparency in the dealings between the United States and that country. That's exactly what we mean with Ali Shore. That makes plenty of sense. So going a little deeper there from your perspective, what are some of the benefits for American manufacturers when they're opening facilities, say in Mexico or maybe even other Latin American countries versus China. Yeah, so, Joe, that is a very direct question where the answer is super wide. Right. You know, we need to think of companies, particularly manufacturing, where the people that run them or the people that work them sometimes you know, their clients are in a span of one to three five states right around them. Right. You know, there's many that sell all over the world, but there's others that are very local. So the advantages of moving or expanding better said, operations into Mexico, let's take the Mexico as an example, are plenty. Right. The first one is of course financial. Now Mexico or any country in Latin America will never be as cheap as it is to operate in China, our nation. You know what, we need to start there. But with that being said, what we see from a labor perspective is to expect at least a fifty reduction in your labor spent versus the United States. Okay, so that one, that financial piece becomes very important. The second pieces, and we talked about it a little bit earlier when we're talking about all that sharing is from a supply chain perspective. If your suppliers are coming from different parts of the world, right, sometimes when we do the math and we actually do the modeling, it makes sense to bring all your materials into Mexico, right, transformed in Mexico, and then bring into the United States there for final production or for stripment, you know, to our customers. The third one, which I think is very important is transparency. When we talk about doing business in Mexico, we have U S m c A that provides a set of regulations that protect the investment and the operation of North American companies in the region. That is something that agreement that we have between Canada, United States and Mexico is really forward looking and that is something that no other country in the world has but Canada, United States and Mexico. And believe me, every time we're abroad, every time we're speaking with European companies with Asian companies, they wish they had an agreement like that one because it protects the investment, it protects the operation, it protects your I P which is crucial. Right. And then the last one is time zones. Right, we do operate in the same time zones and that gives us, believe it or not, a North American way of working. Right. You know, people in Mexico are used to working with international of all companies, would you believe me, Joe, if I told you that if the Fortune One companies over of them operating Mexico, would you believe me if I told you that. It's a good question, and maybe would be. Yeah, I don't know. I don't know what to expect there. So over se of the Fortune one companies operate in Mexico, think about that. That tells you that the workforce that you have in Mexico is used to working with international companies, and that gives you that North American way of working. They're used to to to to operating under you know, international management. So those would be to me, the main advantages of you know, operating in Mexico expanding into Mexico. And something very important, Joe is over the past three years, we've helped more than twenty businesses expand into Mexico and Latin America. Not a single one of them has shut down their operations in the United States to expand into Mexico An America. What they have done is shut down their operations in Asia to bring them to Mexico and to Latin erk But...

...not a single one of them has shut down their operation in the United States. And that tells you two things. Number one is we are maintaining those jobs in the United States. They're not going anywhere. This is an expansion plate. And number two that collaboration across borders is rising and the companies that do it first are taking more advantage of it. Alberta, can you give us a glimpse into what the process looks like to set up operations in Mexico in a situation like you're describing where it's it's an expansion of the business. So every company is different, Joe, as you know, all right, so you truly have to begin with what is the main objective of expanding? What do we want to accomplish with this? It said, Hey, we want to many. We want to start by manufacturing two three four skun use that are super simple in Mexico. Is it that we have one sku that is killing it in the United States and we simply cannot have find enough people to continue producing and we just want to expand our capacity. Right, You truly need to understand what's the play here, or perhaps it's a supply chain play where it would be easier to get you know, our larder supplies from different parts of the world, world coming in you know, via via water, right via boat into our into into Mexico and then transform there. So let's define what is the strategic intent of this expansion. After that, we have to dive into the financials. An expansion project should never start without taking a deep looking to the financials and really modeling, Hey, how does our company look like when we expand into Mexico. How much money are we going to make? How much money are we going to save? How is this going to benefits our customers? Right? That piece is very important because that gives you the go or no go. You have a strategic intent. We at Nepanoah without strategic intent, we call it the North Star. Right. And then you have all the information to make that decision should do it or should we not do it? Once you make that decision of doing it, then you get into the weeds of things of Hey, Mexico is a hundred and thirty million people. It's a huge country. It's not the same to operate in Tijuana that it is in Medica. And believe me, each one of the states and each one of the regions in Mexico has a different strategic intent behind. You know, a strategic intent for your company. Right, You're not going to find the same type of people in Wallajara then you will in Mexico City, then you will in Monterrey. And that is what we call the execution strategy. Okay, where are we going to set up? Is there land available? Do we need a building that is already established or do we need to build one? Right, perhaps we can acquire a company that already operates. How is that going to benefit this Let's take a look, you know, from a regulatory perspective, what type of certifications do we need. Are we gonna expand into Mexico to sell into the US, Mexico and the rest of the world, or are we going to expand into Mexico exclusively for the US market, because that requires different types of certifications and a different type of operation and all of that joll we have to put it in a timeline. Okay, after that, what machines do we need? Are we're gonna bring in new machines or are we gonna use whatever we have and just repurpose some of them to take them to Mexico? Tell me about importation of those machines, right when? How are they going to come in? Do we need to pay v A T on that or not? Hey? When are we going to bring into people? If we're gonna need two hundred people, where are we going to find them? When are we going to hire them? How are we going to train them? So all of that JOE needs to be mapped out right once you've made the decision to actually do this, and that may take six months for some company, that may take eighteen months for another company, it truly defined that. It truly depends on what you're aiming to get out of this. Then after that comes the execution and that's where we men, right. We help the side plan and execute.

We become the expansion team for the companies. We take care of everything. We manage a relationship with the government. We negotiate the land, We ensure that the building is being built out the right way. We find the people were bringing the machines right. Every step that I just mentioned we take care of it at as an extension of management of the U S company doing the expansion. That's what we're doing every day. Okay, let's take a quick break here. I want to let a couple of our strategists at Grill tell you about something pretty cool that we're doing right now for marketing folks in the manufacturing sector. Peyton and Mary take it away. Yes, So, I'm Peyton Warrant and I'm Mary Kio. Twice a month we host a live event called Industrial Marketing Live. Right now, we have a group of fifty plus industrial marketers from a variety of manufacturing organizations. We meet up digitally to learn, ask questions, network and get smarter. Every session has a designated topic, and one of our team members at Guerrilla seventy six opens up by teaching for the first half hour or so. Topics have included how to get better at a manufacturing webinar, getting started with paid social on LinkedIn, how to optimize your website for conversions, creating amazing video content, and so much more. After we break it down, we open it up to Q and A so we can help you apply all of this in your own businesses. This is pure value, no cost, no strings attached, no product or service pitches, just so unadulterated learning experience. Oh and on top of these live sessions, we've also opened up a Slack channel where our attendees bounce ideas off each other and learned together all week long between sessions. We're building a true community of manufacturing marketing professionals here, So if you or someone at your company has the word marketing in his or her job title, please consider telling them about it. They can visit Industrial Marketing Live dot com to register. We'd love to see you there, Alberta. What are some of the biggest barriers that manufacturing organizations tend to run into when they're expanding their operations into international territory. Joe, thank you very much for asking that question. I I I greatly appreciate it because this is something that is going to be very valuable to your leaseners. The first one is the financing piece. Okay, doing an expansion project wherever you want to make it, right, I mean, even if it's within the United States, even if it's within your state or within your city, there has to be some investment that comes with it, right, and it can vary. That can be five million dollars. You know, We've done a project that you know, the company is investing a twenty million dollars, right. It truly depends. But the issue is where does that financing come from. Not all the companies, you know, have such a strong balance sheet to be able, you know, to fund this expansion. And I think here is that here lies a great opportunity for financial institutions in the United States because very rarely will you find a financial institution that will lend money to a US company to expand somewhere else in the world Mexico, Columbia, Brazil. Why because the assets right leave the country and it becomes you know, cumbersome for them to recover anything in case, you know, the project doesn't do well. Now, when this company goes into Mexico, or into Colombia, or into Brazil or to Argentina, you may think that financial institutions will be like, oh, of course, I will lend you the money to do this. But at the same situation happens right where it's okay, well you're actually a U S company. You I don't know you, right. You may have great credit history over there, but not here. And you know, even the large financial institution struggle with this. And I'm talking about the VVVA is the city, the Scotia banks of the world, they struggle with this too. So I think there lies a great opportunity for financial institutions to be able to fund and support, you know, this type of expansions. That's the first one. The second point, Joe...

...is you just don't know what. You just don't know, right. The United States is a huge country, a beautiful country. But if you look at the regions of the United States, they almost feel like different countries. Right. If you go to the West, it feels completely different than the East coast. If you go to the Southeast versus the Midwest, it feels completely different. And you're talking to someone that lived in Atlanta before moving to Chicago, right, So it is difficult for people just to move within the same country. Now, when you talk about okay, let's go abroad, let's go and set up shop in Costa Rica. Right, of course, there is hesitation, there is risk. There is articles that you read in the news so that you watch on TV from four or five, six, ten years ago that still impact your perception of it. So being able to hold the hand right of the owner or of the team that is responsible where the expansion is very important. To be able to take them there to Mexico right to see the sides, to get the film, to see the infrastructure, to experience it. It absolutely changes the perspective, right of the decision makers are they come in expecting something usually very bad, and then when they go in and they're like, oh, this is great. So guys, American companies have been established in itself in other countries for hundreds of years now, four hundreds of years now, right, it's been done before. And you know the countries like Mexico or the rest of Latin America, they have done nothing but up skill itself, but build better infrastructure and be used to operate internationally. And then the third one, and I think this is the one that we answer the most questions on Joe is the people. What type of people will work for us? And I love that question because we will use Mexicos. An example, when you look at the demographics and you see that the workforce of Mexico is between twenty five even thirty years old, you see a young country. When you learn that more than three hundred thousand engineers graduate each year from Mexico, and when you learn that the turnover rate for employees in Mexico is sixty lower than it is in the United States, it absolutely changes the perspective. You see opportunity. You see a place where you can not only move right now, but expand and grow into the future, always benefiting North America as a whole. Those are the three, you know, biggest barriers are frequently asked questions that we get right at the beginning for project with a company. Yeah, that's all powerful stuff. Alberto, Is there a success story you'd like to tell about an American manufacturer that successfully expanded operations into Mexico. Oh so, as as I told you, Joe, we we've held more than twenty companies do so there's one in particular that I that I really want to mention. Its name is, It's Solar Plastics. Solar Plastics is a company based in Minnesota. They operate in Minnesota, and in Iowa there are Roado Molder and it's a great story because they you know, among their many clients, right you know, they have Caterpillar, they have Yetti, you know, turbo clients that they work with. One of them was very interested in them taking their facility to Mexico. And they're expanding their production into Mexico, and we helped them do that right from the beginning, right you know, the CEO came to us with a question, Hey, is this is impossible? How does it look like? And we were able to work with them to make a concrete plan as to how it was going to look financially, as to the timeline that they were going to have to you know, work with. You know, as we expanded into Mexico, one of the main challenges that we faced their job is that we were literally in the middle of COVID. I mean when we started working with Solar Plastics, we're talking about September of toll were of right where decisions were still...

...op in the air as to what should companies do. And they did a great job of just taking advantage of this. We powered through it and we were able to get them operating in Mexico with a facility of a hundred and fifty people right in twelve months. And they're just doing very well in Mexico right now. And there's future plans in there, but I cannot comment on those ones. But they're doing very well. And um that's one story. Another story. It's a company in Dallas. I didn't get their permission to use their name, but what they do is they manufacture and assemble plastic plants, okay, And what they did is they wanted to move to Mexico because they wanted to shut down their operations in in in China, and we were able to help them with that. It was not a large operation like the one that I just described with Solar Plastics. This one was sixty people. But what we were able to do is bring all their supplies into Mexico right via water, and then from there they would assemble it in Mexico and then they would ship it into the United States. So that's an example of a US company that shut down their operations in China and brought it to Mexico. Now as we're speaking, we have several projects ongoing, one with a very large manufacturer of furniture right that is actually building a facility in Mexico. We have another one related to films, the films that you have, you know, for plastic bottles right water bottles where you see the brand right or chips right. With them, we are on we are an ongoing project with them, helping them expand or ribot Land. We're developing that. And then there's a couple of other companies here in the Midwest that we're helping, you know, do this. So we're busy, Thankfully, we're busy, and we've seen the benefits of of the companies that we've taken, you know, to Mexico. It's one of the companies that we've mentioned throughout this. You know, their valuation just doubled the moment that they expanded their facility down there, because you know, from an investor perspective, it's different when you deal with a company that ex elusively operates in one country to a company that operates in two countries and that is able to take a little bit of more market share because of that. So as soon as they saw operation, investors, you know, double the value their evaluation, which is absolutely fantastic. Alberto, is there anything you'd like to add to this conversation that I did not ask you about. Joe. First of all, I just want to thank you for the opportunity to share our story and what what we're doing. But what I would like to let your audience know is to think of North America as a whole today. There is no reason why a Canadian company should not consider the United States as their market, Mexico as their market. A US company should consider Canada and Mexico as a market, and a Mexican company, of course needs to consider US and Canada also as a market. So both from a commercial perspective but also from our operational perspective, there is no reason why any company shouldn't consider our region as a whole. We have a great agreement in U S m c A that not many companies are taking advantage of. And I've experienced this, I've lived it, I am doing this every day, and to me, it's simply common sense. Where it is okay. We have an extra territory south down South that includes a hundred and thirty million people. We have additional territory up Northern Canada that includes fortinating people. Why don't we consider this a region? And what is happening geopolitically in the world impacts our region. We cannot be bind to it. Right We as business people in the manufacturing industry, we need to be aware of what is happening worldwide and be able to adapt. And our region is growing closer and our region is very strong from a people perspective, from a finance perspective, from an innovation perspective. Right, we are the strongest region in the world and we need to work to continue being so. Ill said Alberto, This was...

...a great conversation. Can you tell our audience how they can get in touch with you and where they can learn more about Napanoa perfect, Thank you very much for that show. So our website is www dot Nepanoa dot com. Alberto, I'm struggling to pronounce Neapanoa. Don't worry, guys, everybody struggles to pronounce Nepanoa, but a little you know inside secret. I love the name. But also Napanoa dot com was available when they started this company, so it was the best twelve bucks that I ever invested. Napanoa is n e p A n o A n e p A n o A. My email is Alberto at Napanoa dot com. We also have just a general email which you can you know, always send an email and will respond to it. It's connect at Napanoa dot com. And we are on all social media platforms. We are on Twitter, we are on maintaining of course Facebook, Instagram, and we're constantly uploading content related to doing business in North America. Fantastic, Well, Alberta, once again, thanks for doing this today, No Joe, it is my pleasure. Thank you for the invitation. I hope you have an excellent weekend. Same to you, and as for the rest of you, I hope to catch you on the next episode of The Manufacturing Executive. You've been listening to The Manufacturing Executive podcast to ensure that you never missed an episode. Subscribe to the show in your favorite podcast player. If you'd like to learn more about industrial marketing and sales strategy, you'll find an ever expanding collection of articles, videos, guides, and tools specifically for B two be manufacturers at Guerrilla seventy si dot com slash learn. Thank you so much for listening. Until next time,.

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