International Newsmaker Q&A: Ray Reulbach

Aftermarket businesses interested in trading with Mexico-based suppliers and buyers have numerous options available for easing the assorted transactions, according to Ray Reulbach, vice president of customer solutions at UPS.

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He recently answered a series of questions about the various approaches that can be explored.

What types of companies are investing in U.S.-Mexico trade and why? Why is this trade relevant to the aftermarket sector?

Mexico is quickly becoming known as an attractive alternative to China for manufacturing goods destined for the North American market. Companies like General Motors, Ford, Siemens and Bosch continue to grow their operations south of the United States border. This also is causing tier two and three suppliers and manufacturers to follow. Mexico has become much more competitive, as well as viable for manufacturers due to this near-sourcing movement which makes certain goods great candidates for being produced in the United States, Caribbean and Mexico.

Today there are still many U.S. companies that are manufacturing at home, but they are looking at Mexico as a possibility to stay close to home and grow profitability rather than moving production to China. U.S. manufacturers are looking outside their borders for low-cost labor and components in order to remain competitive. Companies are looking to Mexico for their manufacturing needs, because of the lower labor costs, large pool of labor, reduction in overall supply chain costs and the North American Free Trade Agreement (NAFTA).

Heavy automotive manufacturers and suppliers are investing in Mexico because they can leverage the maquiladoras for manufacturing components and sub-assemblies for export and transport to factories for final production. The auto industry has taken the lead with recent announcements that they will set up new manufacturing plants or expand existing ones in Mexico. And the aerospace industry is following suit with expanding operations in the country as well.

According to a recent study by J.P. Morgan, while wages in China’s manufacturing sector were 237 percent lower than Mexico’s 10 years ago, they are only 14 percent cheaper today. And Mexico’s share of U.S. manufacturing imports grew from 11.3 percent in 2005 to 14 percent in 2011. Mexico offers easier access to North American markets with a shorter, faster and cheaper transportation route to move products and supplies by truck, rather than over thousands of miles by ship, rail and truck combined. The average time in transit from a northern state in Mexico to the United States is 3 to 4 days, compared with ocean container movement from China to the United States which can range anywhere from 14 to 21 days. The significantly shorter time in transit is becoming more attractive to U.S. manufacturers.

What tools or resources are available to companies interested in engaging in U.S.-Mexico trade?

There is a limitless amount of resources available to companies that are either evaluating or preparing to set up a manufacturing operation in Mexico. These resources are located on both sides of the border and include government agencies, trade associations and private consultants. The groups provide assistance in dealing with specific trade issues, but also focus on a variety of laws, including transportation, local employment, taxes, customs and regulatory and compliance issues. These resources are valuable to companies seeking to establish their presence in the country. However, it is critical for companies to have a trusted logistics partner like UPS to help them minimize their total landed costs for manufacturing in Mexico.

Many companies neglect to map out their entire supply chain when selecting a manufacturing location which causes them to sub-optimize the overall benefits of the move. Companies need to focus on the movement of goods both inbound and outbound, as well as mode, network capacity and reliability. Many transportation providers deal with these issues separately, but UPS offers a bundled and complete solution to assist customers with successfully getting their businesses set up in Mexico.

What key business considerations should aftermarket companies take into account when conducting (or planning to conduct) business in Mexico?

There are many considerations that companies must investigate and thoroughly understand before making the decision to conduct business in Mexico. The top one that comes to mind is doing business under NAFTA and leveraging this trade agreement to make it a competitive advantage over sourcing from China. Other considerations include inbound cost of raw materials or components, manufacturing costs, outbound transportation, time in transit and complying with Mexican customs requirements.

Can you define near-sourcing? What countries are involved; when did this trend begin and why?

I think the term near-sourcing may be a little difficult to define at the current time and there are a lot of supply chain practitioners trying to do it, but what we are calling near-sourcing is really a trend that is starting from strategists implementing a series of new practices and ideas to shrink the supply chain. These changes are no doubt a response to the global rise in fuel and labor costs. The near-sourcing trend has become an increasingly viable option for many businesses looking to reduce their production and supply chain costs, as well as expand their market share. Countries, such as the United States, Mexico and Canada are viewed as targeted locations for this growing trend.

UPS CrossBorder Connect, a ground freight service between the United States and Mexico, is designed to significantly ease heavyweight freight supply chain challenges for companies investing in cross-border trade. This service offers fast, reliable transit times, often in a timeframe of three to four days between most major U.S. cities and Mexico, providing companies with another cost and speed option for their cross-border shipments.

We are seeing more automotive companies now moving production closer to consumption points in North and South America, and a service like this can help manufacturers and suppliers navigate the complexities inherent in U.S.-Mexico trade while containing costs.

What are some of the cultural or business practices issues, if any, in Mexico that may differ from the way business is conducted in the U.S?

Prior to conducting business in Mexico, a U.S. company must consider the cultural and business differences. First, it is important for U.S. companies to analyze the education level of the workforce, as well as the population centers in Mexico. Labor rates in Mexico, for example, vary from state to state and it’s important that a company fully understands that information. Secondly, it is important for companies to perform a SWOT (Strengths, Weaknesses/limitations, Opportunities and Threats) analysis to understand the labor climate, as well as the demographics of the working class. Companies must fully evaluate and understand every aspect of the country, its people and how they conduct business.

Does an aftermarket business in the U.S. need to have a Spanish speaker available when trading with a customer or supplier in Mexico?

Yes. It is important for an aftermarket business to have a Spanish speaker available when trading with a customer. A great deal of important information can get lost in translation, so it is critical to have bilingual resources on the teams evaluating the move to Mexico, as well as the implementation and operational teams. Over the years, Mexico began to understand the importance of bilingual communication and there was a push to offer English classes to the workforce, enabling them to better communicate with their largest trading partners, the United States.

For more information, visit www.ups.com.