When Mexico first allowed maquiladoras, foreign-owned plants with duty tax advantages, in the mid-1960s, it did not take long for a related service industry to emerge.

Maquiladoras are complex operations to establish. Large manufacturing companies can easily establish one. But small and mid-sized manufacturers needing to grow by competing on costs required help in setting up operations in Mexico.

Thus was born the shelter industry more than 35 years ago.

“It was the chicken, then the egg,” said Gale Thompson, vice president of operations for Tucson, Ariz.,-based The Offshore Group, a leading shelter operator. “A shelter is a maquiladora, a specialization. Shelters help companies install quickly with minimum risks.”

Shelter companies are based in both the United States and Mexico. Some have developed their own facilities for manufacturing operations. Others do not own real estate, preferring to work with Mexican industrial property owners to find the best location for their clients.

Foreign companies have no legal presence in Mexico since the manufacturing occurs under the name of the shelter company, which hires and pays the work force, acquires the permits, handles taxes, and arranges the utilities, transportation and warehousing. Typically, shelter companies compile the costs and pass them on to their clients, adding a shelter fee.

Shelters Help Smaller Firms

Shelters come close to contract manufacturing. The differences are that shelter clients must provide the manufacturing equipment and can have more direct control over operations.

Mid-sized companies often gain the most benefits from shelters.

“Medium-sized companies tend to be more entrepreneurial, more open-minded,” said Richard Jaime, a principal for North American Production Sharing Inc., based in Del Mar, Calif., with administrative offices in Tijuana, Mexico.

Small and mid-sized companies are less able to set up human resources, logistics and other administrative departments in Mexico when siting

operations there.

“They also tend to have leaner management,” Jaime said. “There’s not a lot of slack to staff a facility in Mexico, so they are better situated to outsource services.”

Shelters worry about the details and allow companies to focus on their core competencies.

“We can provide services at a lower cost than companies can on their own,” Thompson said.

The Offshore Group added nine new clients in 2005 and expects to add another eight or nine in 2006, based on the number of companies investigating shelter sites in Sonora, Thompson said.

“New companies are looking at Mexico more than ever,” Thompson said. “Through November, we had 86 company visits. In 2004, we had 81 companies visit and 54 visits occurred in 2003. So in the past three years, we have seen growth. It looks very good in 2006. We are in negotiations with companies.”

Existing clients are divided mainly in the medical devices, automotive, high-tech and aerospace industries.

“Of all our clients, two-thirds employ less than 250 people; one-third employ less than 50 people,” Thompson said.

Shelter companies also differ in philosophies about whether to encourage and assist clients to graduate to their own stand-alone maquiladoras as operations expand.

The Offshore Group encourages clients to remain in shelters.

“Some have been with us for 15 [or] 16 years,” Thompson said.

North American Production Sharing will assist companies that outgrow the shelter concept to establish their own maquiladoras, often after about two years.

Many ex-clients, however, will continue to contract with North American Production Sharing for services such as payroll and logistics.

ProSource/Made in Mexico, a shelter company based in San Diego, also helps companies transition to stand-alone facilities. The company averaged 2,700 employees for 18 clients in Tijuana last year.

“We help companies in the transition to stand-alone maquiladoras when they need to,” said Tony Ramirez, executive vice president for ProSource/Made in Mexico. “But most of the time we continue to provide some sort of service.”

North American Production Sharing also has contracts with companies that did not enter Mexico through shelters. For example, Hyundai contracts with North American Production Sharing for employee recruitment services for a large facility in Tijuana, said Vivian Olmos, communications director for the company.

North American Production Sharing grew rapidly last year, realizing a 35 percent gain in employees, Jaime said. The company, operating mainly in Tijuana but seeking to expand more in Ciudad Juarez, now employs about 4,000 workers for 31 clients.

Employment size ranges between 20 and 350 workers among the clients.

One-third of North American Production Sharing’s clients are automotive. Others manufacture consumer goods, such as photo albums, picture frames and wooden boxes, Olmos said.

Much of the growth at North American Production Sharing came from expansion of existing client operations. In 2005, non-North American clients rose to nearly 30 percent.

Global Competition Plays Role

Driving growth is a more robust U.S. economy and a rising interest in “near-shoring” rather than offshoring, Thompson said. European companies are showing greater interest thanks to the Mexico-European Free Trade Agreement, which allows European firms to stage manufacturing in Mexico for products bound to U.S. markets with lower duties.

Because of a growing U.S. economy and companies taking a second look at Mexico after experiencing delivery delays from Asia, North American Production Sharing, like the rest of the shelter industry, anticipates a good year in 2006.

“Some of our expanding clients are still programming growth,” Jaime said. “It takes talent at the production floor level, and we’re seeing that bear fruition. Everything is coming together for this industry.”