A Comprehensive List of Items that May Require Action by any Company moving into International Trade - Mexico in Particular
Skim the following list of possible action items. Write them in columnar order leaving spaces to fill in 'Task name', 'responsibility', 'start-time', 'must be completed by:', 'cost', 'notes'. For example:
This becomes the basis for your project, tasks, time-line, responsible parties and budget.
Start now:
Define who your project leader will be to implement an international trade system within your organization. Make sure the five steps of delegation have been properly executed:
1- The importance of the project has been properly communicated and accepted
2- The end result has been defined but not the details thus avoiding micro-management
3- A timeline has been agreed upon, milestone meetings set, money and people resources identified and approved.
4- Feedback from the project leader has proven to the owner/manager that the project is fully understood and could be considered a contract.
5- Measurables have been put in place to validate activities as the project moves ahead. Rewards and consequences have been defined.
Now take action!
Establish contact with your local Department of Commerce ITD (International Trade Development) Welcome to the International Trade Administration, U.S. Dept. of Commerce
Broaden your profit potential by offering better than competitive terms to your customers by insuring credit through Export-Import Bank of the United States
Basic Etiquette Primer for those essential and crucial 'eye to eye' meetings in Mexico; Read "Doing Business in Mexico - and have fun doing it!"
Freight forwarders active in Mexico Bill Hay ops@billhayintl.com - www.billhayintl.com Do you really understand the terms FOB and what responsibilities exist for buyer or seller? For example if the term is FOB Origin, then the buyer must determine exactly who the carrier will be, must insure, and is responsible for the cargo from the moment it is on the truck, plane, boat, pipeline or burro. Do you fully understand that the Bill of Lading is the document which gives title to the cargo and is the instrument for transferring title? Have you learned what FOB Mid-Brdige means? And what a Pedimento is? Mexican carriers do not automatically insure your cargo. Refusal of apparently damaged merchandise may automatically transfer title to the carrier. If you don't fully understand these procedures, you need to get help. Bill Hay is a frequent speaker on this subject. Find out where and when or call and ask for help (800) 661-9966 or (619) 661-7100
A customs broker in San Diego with a solid reputation Leonor Ferrer ferrer-brokers@worldnet.att.net - can put you in contact with a Mexican broker also
A customs broker in Mexicali with a solid track-record is Earl Roberts earl@rljones.com
A Mexicali shelter operation with references to spare: Oscar Martinez Palomera, phone 011 52 6 567-6797
A customs broker specializing in agribusiness in San Diego, Manuel Rodriguez (619) 671-0522 - offices in Tijuana and Ensenada as well.
Post US and Mexico holidays in shipping/receiving, planning, sales and production conference room. Holidays in Mexico
Post daily exchange rates and news notes. Bamex Wholesale Currency Exchange
The Mexican equivalent of our Department of Commerce - Bancomext - you can find out about any company in Mexico especially if you are looking for a source of materials, products or services. They are also assisting foreign investment by matching funds through low-interest loans.
Phone/fax/Email list cross-referenced by key personnel on both sides. In international trade it is customary to have a sequential numbered log for both sending and receiving faxes. This dates back to the original Cable, teletype TWX, telegraph and Morse code communications. It is assumed that 10% of messages will be lost. Thus, you mark 1, then 2, then 3 the messages sent both on the sent message and on your outgoing log. Same for incoming. At the end of the day you will detect missing messages and ask for re-sends. If you don't do this you are risking total loss of the business.
Note: Email does not work in Mexico yet. Even though your Mexican contact may have Email, it cannot replace the mandatory numerical sequential control for international trade.
FMN or FM3 for US citizens planning travel in Mexico.
Needed for initial contact with customs broker: (Your CITD consultant will help you through this process - see Links)
Material list, value letter
Rulings on the classification of your merchandise
What is the country of origin?
Do you obtain manufacturer's affidavits from all your vendors?
Is all merchandise properly marked with the country of origin?
How is your merchandise described on the invoice
What is it called
What is it made of
What is it used for
How is it packaged (unassembled)?
What is the value
Selection criteria for brokers and freight forwarder
Decision matrix: Each of the following will require a specific set of tasks. Your CMTAC consultant will help define each step, or email Waynelund@worldnet.att.net for assistance and guidance.
1- Need to establish a maquiladora
2- Could get manufacturing done through a shelter operation
3- Could issue purchase orders and have production done like a job shop would do in the US or simply buy finished product from Mexican supplier.
4- Will be selling from our office in Mexico and invoicing in Mexico
5- Will be selling from the US and invoicing from the US and require customer to pay in Dollars through a U.S. bank.
6- If selling into Mexico, need to comply with NOM and other regulations.
7- If selling into Mexico to my own company, must work with SECOFI and get import permits. Otherwise may need to assist Mexican customer to do the same.
8- Need to hire a representative in Mexico to find buyers or sellers.
Understanding the Maquila
Review of all Mexican permits required to establish a maquiladora.
The business name and step by step process to establish a legal entity in Mexico which must be done if you are to invoice a customer if you are dealing from within Mexico.
Hacienda - The equivalent to the U.S. Internal Revenue Service and Treasury. Every person and every legal entity must be registered with Hacienda and have the appropriate RFC, much like our Social Security number.
Landlord and lease - A signed contract must accompany paperwork to Comercio (was CECOFI)
Social Security filing and deposit - A new hire must be registered with the Seguro Social within a day of being hired. The system is computerized and easy to use once your establish contact. This organization also provides medical insurance for your employees and must be registered in order to receive the service. You do not need any other medical insurance.
Comercio (SECOFI) registry and approvals - This organization is supposed to encourage investment in Mexico. The title is Secretariat of Commerce and to Encourage Industrial Development - Secretaria de Comercio y Fomento Industrial. A good working relationship with these bureaucrats is essential for your continued success in Mexico. Comercio (SECOFI) is usually the first step toward establishing your legal presence in Mexico. They will guide you through the process and help you if they like you.
Your need for FM-N, then FM-3 - Do not go into Mexico to do business without a legal paper. A tourist card is not the right paper. You must have either a 30 day visitor permit or an FM-3. The 30 day visitor permit can be issued at any port of entry into Mexico upon presentation of your passport and the name and address of your business contact in Mexico, and it's free. The FM-3 is a year-long permit which you must have for multiple entries into the country. The Gobernacion offices along the border will give you the forms and any competent secretary in Mexico can fill them out for you. You'll need a black/white photo, regulation size, and photo studios are a stone's throw from most Gobernacion windows.
Labor laws, mixed committees, training - It is imperative that you become familiar with Mexican labor laws if you intend to hire even one person. The norm is 48 hour work week, the salary you offer them is what they will receive and you pay all additional fees to the Social Security, their income tax, house savings, vacation, year end two-week Christmas give (aguinaldo) and so on. Unlike the U.S. where a salary is gross to the employee, in Mexico it's net. You pay everything else. Take a look at the expenses of a typical maquiladora for one year.
The labor contract - 30 day fiction - terminations - Many people are under the impression that a Mexican employee can be hired on a 30 day trial basis. NOT SO. Once you hire a Mexican they are forever and to let them go you must liquidate them under a very precise formula if you terminate them for any reason except theft or insubordination. There is no such thing as a 'lay-off'. You can hire people to work on contract work as long as the contract is defined and upon completion they are let go.
You can pay a Mexican in U.S. dollars from the United States for work to be done in Mexico and declare the expense on your Federal Income Taxes. As of today, first part of the year 2000, there are no links between the IRS and Hacienda although they are getting close. In paying for services such as marketing, sales, research and the like, simply pay your Mexican agent in dollars and let them worry about their taxes. It's a good idea to get a receipt from them on an official RFC paper but not absolutely necessary for your tax purposes. Do not take this as legal advice, you must make sure this information is valid when you begin your own transactions.
Aguinaldo, vacation pay, days off - Aguinaldo is the year-end two-week gift in cash to Mexican employees from janitor to CEO. Vacation pay is mandatory and days off can be negotiated to fall on Fridays or Mondays but EVERYBODY must agree and you must have a record of their signatures on the agreement if ever questioned. These things usually are wedges used by the franchised labor unions to gain entry into your business. You must investigate the union situation with your professional association as soon as possible and devise a strategy to keep a friendly union environment. United States unions are funding union awareness in Mexico and stirring the pot. This item should be at the near top of your priority list.
By law every Mexican company must join it's industry's professional association; the equivalent of a Chamber of Commerce, or the California Manufacturer's Association, etc. This may be changing, but it is highly recommended that you join your association in order to keep abreast of changing rules, laws and the like. Ignorance of the law, in Mexico as in the U.S., is no defense for breaking such laws.
The 48 hour workweek in five days option - Most factories arrange working hours of 9.6 hours a day and Saturday/Sunday off. The legal salary structure is for the employee to be paid for seven days with one day off. You must take this into account when negotiating holidays, overtime and the like. It's been systematized by now and any competent payroll clerk can handle this for you.
The pedimento process and examples of software to handle it. - Everything coming into Mexico; machines, tools, raw materials - enters under a 'pedimento' (A US Bill of Lading converts to a pedimento), which is an in-bond transaction. The items are logged in, and when they go into assemblies or are returned to the U.S. they are logged out and accounted for. There are many software packages that integrate with your materials resource planning system to facilitate this process. Otherwise it must be done by hand. Again, there are trained clerks ready to do this for you in Mexico.
The role of both U.S. and Mexican brokers and freight forwarders - You don't need to learn the paperwork for import and export, freight forwarding the like. That's why you hire a broker and freight forwarder. You can't do business without them. By law, both Mexico and US customs demand that the paperwork and fees be handled by licensed or franchised customs agents. So there is no need for you to learn the ins and outs of import export paperwork. An occasional visit with your U.S. customs specialist is a good idea to make sure you are paying the lowest possible duty on stuff coming into the U.S.
The fundamental reason for having a maquiladora - basic economics - See my short piece on the economics of a maquiladora. Fully burdened direct labor costs for a factory worker in the United States varies from $15 to $25 in most cases. In Mexico a shelter will charge you from $4.50 to $5.50 and if you do your own you could pay as low as $3.50.
How NAFTA will affect the pedimento process by 2001- Briefly the 'pedimento' (in-bond) zero cost tariff will be replaced by a favorable tariff for U.S., Canadian and Mexican companies. The 4 to 12 billion dollars coming into Mexico via the port of Los Angeles today from the orient will suddenly be taxed upon crossing into Mexico. Some say as little as 3% others as high as 12% and yet to be determined. See the short article on this issue.
Basic Materials Primer -
This list is provided as a quick checklist for what may or may not change as you become involved with international trade.
The make or buy decision - The formula you have used prior to international trade may or may not be up to date. Your MRP system may require reconfiguration based on import/export transactions that are now to take place.
The price you are willing to pay or willing to accept is only the first factor. International trade requires that you also consider duties, freight and other surcharges. The first thing you must determine is "Country of Origin", and from there determine the applicable duties. Please review the web page for links to explore the many sources for this kind of information.
K&T analysis (Kepner & Tregoe, The New Rational Manager. Princeton Research Press, 1997.)
Process capabilities - Be prepared to help your Mexican supplier develop the capacity needed to satisfy your requirements. See the Sanyo Story.
Factory expansion potential
Specifications and tolerances - Many Mexican shops use first angle projection and metric dimensioning. (Makes a right-hand part a left hand part if manufactured using first angle projection but drawn in U.S. standard third angle projection print.)
NOM is the Mexican equivalent of UL, only it applies to almost everything. Your Mexican customs broker will help you wade through this quagmire. The literature and labeling on your merchandise going into Mexico must be in Spanish... just as a start.
Engineering drawings and rev numbers and Fundamentals of Configuration Control - A quality manual in Spanish is included in this material. You may want to encourage your Mexican supplier to look it over and take the necessary steps to apply key elements for their success.
The BOM - your most important document of all - If at all possible include samples or isometric sketches of all your components along with the part number, revision, tolerances and the like. If you can provide go-no-go gages to facilitate your supplier's quality mission so much the better. Your Mexican source will give you the quality you ask for as long as there is a sound foundation of how to measure such a thing.
Engineering Change Orders - A simple fax to your supplier will ensure disaster. You must establish a firm method of receipt acknowledgement along with feedback proving compliance. Couple this to a Request for Corrective Action procedure and you will guarantee a successful relationship.
Quality review
The need to manage materials on a project basis
Every component must be at the right place at the right time
Setting up a checklist traveler for every PO
Follow-through and the need to expedite
Inventory costs and turnover ratios
Analysis of cost for material on the water (On the ship from Taiwan or on the truck at Otay Mesa crossing) - A typical shipment from a Mexican source will include queue time at the factory to accumulate a container or truckload or box-load of merchandise. Then a bill of lading containing information on number of items, number of boxes in the container, closing pedimento (in bond material), adjusting inventory, and invoice data is sent to the customs broker. The shipment arrives at the border where the driver will receive processed papers then queue up to cross into the United States. This could be as little as one hour or as much as a day depending on the number of customs agents, number of trucks in line, attitude of the agents, availability of drug sniffing dogs and the like.
Cost of timely delivery
The importance of JIT
The link with Production Control
Materials Resource Planning (MRP)
Manufacturing Resource Planning (MRP II)
American Production and Inventory Control Society, APICS
Enterprise Resource Planning (ERP)
Database fundamentals
Sourcing Materials in the U.S. (Just a reminder)
Searching the databases
Internet, Thomas Registry, Yellow Pages, Home Pages
Using referrals
Submitting the request for quotation ( RFQ)
Fax, email, mail, messenger, FedEx
Expect 1 out of 5 to reply
Usually only after phone contact has been made
No luck without a phone call
Analysis and recommendation
Validation of vendor
Terms and conditions
Quality standards, the MRB and RTV process
Monitoring suppliers
Qualifying suppliers
Sourcing from overseas vendors
WTC, SBD/ITC, foreign consulate offices, trade offices, Internet, directories, referrals
Overseas travel
Sources of information and assistance
Cultural aspects that make or break relationships
First submission of your drawings and specs
Request for quotation is Request for Proforma Invoice
Proforma Invoice - A proforma invoice becomes the official document upon which production is started, the product shipped, received and paid for in international trade. It starts with you asking a potential supplier for a price and delivery on a particular item or shipload of items. They will give you all the information needed for you to start a letter of credit, acceptance of the merchandise, payment of duty, freight, insurance, liabilities, warranties and all other elements of an international transaction. Most banks who deal in international trade will help you through this process as well as your customs broker. Do not do this on your own the first time. Later you can boilerplate these procedures. But not until your banker and customs broker have taught you how. This cannot be learned in school nor on-line. Again, please note that lawyers are not required for this process.
Supplier currency or U.S. Dollar as basis - Your bank, and check exchange rates frequently. Bamex Wholesale Currency Rates
Customs requirements - If importing you must determine the customs classification which leads directly to the duty you will be paying. A customs broker will do this for free if they see you as a serious trader. Otherwise go to International business terms and start your research.
Certificates of Origin - The most important element when considering www.nafta.net/it.htm NAFTA.
Acceptable Quality Limits (AQL) defined and agreed to
Material Review Board (MRB) process defined and agreed to
Non-Conformance Reports (NCR) process defined and agreed to
Issue Purchase Order
Sourcing from Mexican companies
If another maquiladora, ensure pedimento process completion
INEGI and Cross-Border databases on Internet - Mexican Institute of Statistics <http://www.inegi.gob.mx/homeing/homeinegi/homeing.html>
Referrals - Business in Mexico is not like business in the United States. Read the series on Mexico as listed on the first page of this site.
Investigate thoroughly
Clearly define terms and conditions
CIF
Peso or Dollar as the basis for devaluation and other changes
Warranties and exclusions
Legal resolution - court or arbitration - ask for a third nation's arbitration court
Keep the contract simple but clear
Establish late delivery penalties and on time delivery bonuses
Establish on-site inspection prior to ship
Establish IVA recovery plan
Import procedures
Extreme accuracy in all paper transactions
Bill of Lading document exactly according to number and description of packages.
invoices, transfers, customs brokers and freight forwarders
Export procedures - hints for US companies shipping into Mexico.
Pedimento (in-bond) process.
Pay according to harmonized tariff schedule
Tracking
Red Lights - People, cars and product going into Mexico are subject to in-depth searches, document verification and the like. The procedure is for you, or your driver, to press a button which randomly selects an X percentage of samples. When the light turns green, you continue as if nothing happened. If red, then be ready for the complete bureaucratic treatment. If you have products in your car, or other, that you did not declare, you are in for a real Kafka treat. Learn the rules and follow the rules!
Receiving inspection -
Validate material against engineering documents
Validate quantities shipped against quantities invoiced before signing receipt of the pedimento or bill of lading
Execute MRB, NCRs and data acquisition for tracking vendor performance
Supplier Improvement Programs
Long-term contracts
Assistance with TQM and SPC programs
Relationships
Dealing with Customs
The U.S. Harmonized Tariff Schedule
The newly implemented direct data input
Working with your U.S. Customs specialist
Verify material is on the SECOFI approval list
Mastering Project Management (A course in project management in both English and Spanish are contained in this material.
Managing new product introduction
REFERENCES
The Third Hand and One A series of examples of using very inexpensive tooling and off-the-shelf machine components that will allow an operator to do twice the work, better, with less effort, and with one day ROIs.
How to Create a Success Spiral The step by step process in creating a system where people gladly and eagerly put out high-energy efficiency; often 150% to 200% above normal and love doing it.
Project Management in both English and Spanish (side by side)
Internet course in microentrepreneurship for Spanish speaking new business leaders
Buying for Design - The design/purchasing connection - Published by Purchasing Magazine, 1996.
JIT II - Revolution in Buying & Selling - Lance Dixon & Anne Millen Porter - Published by Purchasing Magazine, 1994.
The New Rational Manager, Charles H. Kepner and Benjamin B. Tregoe, Research Press, 1997.
Quality Control - Dale H. Besterfield - Prentice Hall, 3 edition, 1976.
Taguchi Techniques for Quality Engineering - Phillip J. Ross - McGraw Hill, 1996
High Output Management - Andrew S. Grove - Random House - republished 1998
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