With shelters, foreign companies, mainly from the United States, have no legal presence in Mexico.

The shelter company hires, trains and pays the workers, handles the utility bills, provides transportation and warehousing, and performs other administrative duties. The shelter client provides the equipment and pays the costs on a pass-through basis, plus a shelter service fee. (Shelter companies rarely divulge the names of clients because many clients do not want competing companies to know they are in Mexico.)

Because of competition between shelter companies, there are variations on that basic format. But the main benefit is common: Shelter clients can concentrate on the production process without the hassles of operating in a foreign country.

“We started as a contract manufacturer and a shelter company in 1986,” said Ketta Barrett of the TECMA Group in El Paso, Texas.

TECMA operates 13 facilities in Torreon, Saltillo, Leon, Camargo and Ciudad Juarez, and also has an El Paso distribution center.

Nearly two years ago, however, the TECMA Group sold its contract manufacturing division and bought another shelter company.

“Now, we have a work force of more than 2,000 making products worth more than $40 million annually,” Barrett said.

The client industries include electric transformers, dental equipment, high-tech toys, heating, air conditioning and ventilation, auto lighting and pneumatic valves.

Like TECMA, Consorcio Industrial de Exportacion helps clients advance to their own stand-alone maquiladora after a certain period if the client desires.

More than 4,000 shelter workers produce for nearly 20 clients of Consorcio Industrial de Exportacion in Monterrey, Mexico. The client industries include electronic, plastics and automotive.

“First, [clients] will have a two-year contract,” said Hernando Maquivar, sales manager for Consorcio. “We will speak to them before that is over and suggest another year. But some have graduated on. Sometimes they leave the full shelter but go with a partial shelter and still use our logistics and human resources services.”

One of the newest shelter companies, the Entrada Group, established a base in San Antonio, Texas, and landed its first client, a Fortune 500 company, in 2003, in the group’s initial 75,000 square foot plant in Fresnillo, near Zacatecas, Mexico.

“We’re producing and shipping for the first client,” said Doug Donahue, a partner for Entrada Group. “We’re negotiating with two other prospects, and we’re in the planning stages of putting up a second building in the Zacatecas area.”

At the other end of the spectrum is the Offshore Group in Tucson, Ariz. The Offshore Group employs 11,370 workers for 34 shelter client-companies operating in Guaymas, Empalme and Saltillo. The industries involved are automotive, electronics, aerospace, optics and medical devices.

The largest Offshore Group client employs 1,677 workers; the smallest, only 22.

“Our client with the longest time under contract with original ownership at present is a division of Kimberly Clark,” said Steve Colantuoni, a marketing research and communications executive for the Offshore Group.

Unlike other shelter companies, the Offshore Group expects its clients to stay with the shelter program.

“Our comprehensive manufacturing support services allow them to concentrate on their core manufacturing and quality assurance competencies, as well as add value within that context of our ISO-certified shelter program,” Colantuoni said. “Manufacturers can outsource employer functions, add direct labor without a subsequent proportional increase in indirect labor, reduce capital expenditures, reduce vulnerability to key employee turnover, and benefit from economies of scale that we enjoy in the procurement of certain goods and services that result from our size.”

The Outlook for 2004

Colantuoni said a team from a Fortune 50 company recently scouted its Mexico operations. Entrada’s Donahue said the level of interest picked up significantly late last year.

“If we sign two or three clients a year, it will be a successful year,” Donahue said. “I know this is the feeling of our competitors, too. The level of interest is up, along with questions and inquiries from people who want to know what it will take.”

The U.S. economy is pushing the issue, said Consorcio’s Maquivar.

“We’ll feel it in two or three months,” he said. “We are feeling competition with China, but not much in Monterrey. Our industries stay in Mexico because our work force is very competitive.”

TECMA’s Barrett said the main reason companies still rely on Mexico is because their clients insist that their supplier base stay nearby.

“Companies also do not want to hassle with China, the pain of traveling to Asia, and inventory on the water so long,” she noted. “Some refuse to go to Asia as a matter of policy. The automotive industry is still big in Mexico.”

Colantuoni said companies that should consider manufacturing in Mexico rather than China are often characterized by having one or more of the following considerations — cost reduction demands, high engineering content, intellectual property considerations, just-in-time production demands, inventory cost concerns, stringent quality requirements, duty reduction needs, high levels of interaction with U.S. regulatory agencies, global customer base and political risk concerns.

“When manufacturers consider going to venues that are lower cost than Mexico, they should consider all costs,” Colantuoni said. “These include the costs of lost intellectual property; additional inventory of goods in transit over long distances; additional safety stocks to ensure uninterrupted supply; expensive expedited shipments; warranty claims if a new facility or supplier has a long learning curve; engineer visits or resident engineers to get manufacturing processes right; and senior executive visits to set up operations, or to straighten out relationships with managers and suppliers operating in an alien business environment.”

David Hendricks is a business columnist for the San Antonio Express-News.