Design and Construction of Manufacturing Plants in Mexico · o’neal-beck // design and construction of manufacturing plants in mexico ... of manufacturing plants in mexico // 2

O ’NEAL-BECK / / DES IGN AND CONSTR U CT ION OF MANU FACTU R ING PLANTS IN ME X ICO / / 1

Design and Construction of Manufacturing Plants in Mexico


A recent Boston Consulting Group report expressed confidence in Mexico’s manufacturing sector, noting that manufacturing could add between $20 billion and $60 billion to its economy through 2018. Industries such as aerospace, automotive and medical devices are growing quickly in the country.

Recent announcements from BMW, Ford, GM, Nissan, Toyota and others is leading to capital investment in manufacturing facilities. The combination of trade agreements, low production costs, skilled workforce, and access to world markets and supply chains are among the driving factors of this capital investment.

Mexico’s recent trade agreement reforms implemented under President Enrique Pena Nieto have boosted Mexico’s competitive advantage in manufacturing, making the nation more attractive to a wide number of industries since the first Maquiladoras and Industrial Parks in 1964.

Manufacturers planning to invest in Mexico need to carefully consider the unique requirements for designing, constructing and operating such a facility.

The Mexican economy is a mixture of outdated and modern practices in both business and industry. The process is considerably different than in the neighboring United States. Owners seeking to invest in Mexican manufacturing operation should work with a qualified firm that has the right relationships and experience to ensure a seamless process.

Owners require the same level of quality, operational efficiency and predictability wherever a plant is located. To achieve this approach of proper planning, local knowledge, experience and capabilities is paramount to a project’s success.

Successful manufacturing projects require an approach that focuses on early cost, scope and schedule definition; streamlines the land acquisition and permitting process; and incorporates world-class standards in design, procurement and construction. O’Neal, Inc. and Beck Group International de Mexico have developed this white paper to outline the major areas owners need to address before making a capital investment in Mexico.

FOREIGN INVESTMENT IN MANUFACTURING FACILITIES IN MEXICO IS INCREASING. MANY GLOBAL

COMPANIES ARE LOCATING SIGNIFICANT MANUFACTURING OPERATIONS IN MEXICO. DURING THE

LAST TWO DECADES, THE MEXICAN ECONOMY HAS TRANSFORMED FROM A SMALL ECONOMY TO

AN OPEN AND DIVERSE WORLDWIDE MARKET.


LEGAL FRAMEWORK FOR FOREIGN INVESTMENT

The legal framework for foreign investment in Mexico is governed by the Foreign Investment Law, effective since 1993. This law opened the possibility of foreign investors in various economic activities that were previously prohibited. The law provides only 11 areas limited exclusively to the Mexican State and five others to Mexican nationals or corporations with a foreign exclusion clause. The Foreign Investment Law was intended to promote the benefits of neutral investment and a streamlined administrative process. The law allows for foreign investors and Mexican companies controlled by foreign investors to own up to 100% of the equity in Mexican companies, acquire fixed assets, manufacture products, and open facilities without the prior consent of the Mexican government. There are certain industries, however, that Mexican government has reserved and deems as strategic, thus not open to investment. Certain activities can be carried out under a Foreign Exclusion Clause.

Typically, one of three business structures are used by foreign companies establishing Mexican manufacturing operation: a standalone business, utilizing a shelter provider that manages a manufacturing community, or a joint venture partnership. Companies seeking to establish manufacturing operations should carefully consider the advantages and disadvantages of each model.

Foreign companies that set up manufacturing operations located in Mexico design primarily for exporting goods are called Maquiladoras, or maquila operations. Maquiladoras are taxed differently than Mexican manufacturers.

SITE SELECTION AND EVALUATION

While there are several areas that have concentrations of manufacturing facilities, selecting the right site is critical for successful operations. Mexico has clusters of specific industries located in various regions of the country. These clusters typically have a manufacturer and their suppliers in close proximity. For example, in the automotive industry Tier 1 and Tier 2 suppliers, and raw materials suppliers will be located very close to the OEM manufacturing facility. Geography will have a significant impact on logistics and the cost of labor in Mexico. Owners should work with a qualified firm that can perform a full site analysis and evaluation to make this complex decision more manageable. A thorough site selection and evaluation process should include: site analysis and evaluation; utility availability, costs and proximity; logistics, infrastructure and transportation access; workforce availability and labor studies; supply chain; and an evaluation of the regulatory and tax environment.

LAND USE AND ACQUISITION IN MEXICO

There are several differences between Mexican and U.S. real estate laws and property rights. In fact, the Mexican Constitution bans foreign individuals and entities from owning real estate in Mexico located within 100 kilometers of the borders or 50 kilometers of the coastline. In addition, there are laws and regulations related to the authorized use and acquisition of real estate. To help attract foreign investment, the Mexican government established Fideicomisos, a 50-year perpetually renewable and transferable Bank Trust through which foreign


individuals and entities can acquire irrevocable and absolute ownership rights to property. These Trusts are a legal substitute for deeded (fee simple) ownership and is provided specifically for non-nationals to own property in the formerly restricted zones. There are specific Banks authorized by the Mexican government to hold the real estate fideicomiso. These zones are defined by the Mexican government and are typically in border, coastal or designated industrial areas. Mexico requires all foreigners to apply for and obtain a permit from the Ministry of Foreign Affairs prior to contracting to acquire real estate in Mexico. Unlike the U.S., the legal status of property is often not very clear and the transfer process can be cumbersome at best.

REAL ESTATE TRANSACTIONS

Although there are many aspects of Mexican real estate transactions that are identical to procedures carried out in the United States, there are many aspects of real estate transactions that are completely different than in the United States. The Mexican real estate process is not as regulated as the process in the United States. Thus, a foreign buyer cannot always depend on the normal safeguards that would be applied to real estate transactions in the United States.

ECONOMIC DEVELOPMENT INCENTIVES

In Mexico, economic development incentives and subsidies are available to attract investment, attain social goals, and/or encourage growth in certain industries. These incentives are negotiated directly with

the State or municipality where the capital investment is going to be made. Similar to the U.S., the incentives are directly tied to the amount of the investment, the land acquisition, and the number of jobs created. Typical incentives and subsidies include discount land prices, reduction of taxes (property tax, real estate acquisition, payroll taxes and others), and reimbursement for training and skill development programs.

ENVIRONMENTAL AND PERMITTING

The process for environmental analysis and permitting varies widely. Mexico is comprised of 32 states and the processes vary from state-to-state. Owners should allow for ample time for these evaluations and analysis. There are various levels of review ranging from local to Federal reviews. While local reviews typically take a few weeks, the Federal reviews can take 12 months or longer. There are, however, provisions that may allow construction activities to commence once a permit has been submitted.

UTILITIES AND SERVICES

Many areas in Mexico do not have ready access to water, electric power and natural gas. As part of the site evaluation process, owners should consider working with the local utility partners to conduct a feasibility analyses and obtain a Feasibility Letter from the utility provider. Part of this process should evaluate all costs. Costs to provide utilities and power to the site property lines can be negotiated as part of the incentives package.


DESIGN AND ENGINEERING

Manufacturers require a high level of engineering for these complex facilities. While these services are available in Mexico, certain disciplines such as process, mechanical and electrical may not be to the level expected of U.S.-based manufacturers. At O’Neal-Beck, we understand the importance of U.S. engineering and industry-specific knowledge and experience. We deliver value to our customers who are investing in Mexico by utilizing established, clear and effective procedures that allow the integration of our vast design and engineering experience with local construction methods and regulations. O’Neal-Beck’s integrated approach to engineering-procurement and construction consistently results in fully-designed manufacturing facilities and installations that achieve world-class standards.

CONSTRUCTION MANAGEMENT

Managing construction in Mexico can be more challenging than in its northern neighbor. Mexican construction projects typically require more supervision and focus on quality control. The subcontractor market is not as developed as that of the U.S. In fact, many areas lack sufficient capabilities required for manufacturing projects. O’Neal-Beck has local resources to address the construction services needed. In addition, there are labor unions in Mexico. Manufacturers need to work with a design and construction partner that understands the landscape and can navigate the construction environment.

SAFETY

While manufacturing owners face high safety standards, the culture around safety is not at a high level in Mexico. O’Neal-Beck will proactively work with all subcontractors and vendors to develop a project-specific safety plan and program and incorporate OSHA safety standards.

QUALITY ASSURANCE

Manufacturers demand a high level of quality in their manufacturing operation, and the same should be true for the design and construction of their facilities. Our team is one of the few contractors in Mexico to have an integrated quality-environmental program already in place to ensure the highest level of achievement for both areas.

PROCUREMENT

Manufacturing and production facilities are complex projects that require building components and specialized equipment. Unfortunately, many of these critical items are not readily available within Mexico. Process equipment, instrumentation and controls, boilers and chillers required for manufacturing facilities need to be sources from other countries. Mexico has a number of free trade agreements, such as NAFTA, that allow for the easy import of construction components and specialized equipment in to Mexico. There are other provisions and tax credits that are available for manufacturers building Mexican facilities. O’Neal-Beck’s procurement team is experienced at specific and procuring this type of equipment.


PROTECTION OF INTELLECTUAL PROPERTY

Manufacturers building in Mexico should be concerned about protecting their manufacturing processes, trade secrets, and intellectual property. Many owners may not understand that critical infrastructure contained in engineering packages, documents and drawings. Intellectual property runs the risk of being compromised during design and construction. These owners need to select a firm that has the proper procedures and safeguards in place to protect intellectual property.

TAXES, TARIFFS, FEES, AND DUTIES

Navigating the Mexican tax laws, tariffs, fees and laws can be very complex. For foreign companies establishing a manufacturing operation in Mexico, value added tax (VAT) can impact cash flow more than cost. Similar to the U.S. and Canada, Mexico has a harmonized tariff system, which, under this system, a good is classified using the harmonized tariff schedule and subsequent import duties based on country of origin and value. These tariffs and fees can impact materials or equipment used in the construction of a manufacturing facility. For construction projects, contractors are required to declare 100% of the labor involved in construction projects and pay fees to the government.

WHY WORK WITH O’NEAL ON A NEW MANUFACTURING FACILITY IN MEXICO

U.S. engineering has proved not only reliable and innovative but valuable for manufacturing companies looking to expand operations in the neighboring country.

O’Neal-Beck’s partnership will ensure a seamless transition and blending of the planning, preconstruction, engineering, and construction disciplines into an EPC project delivery in Mexico. We provide manufacturing owners with a single-point of contact for the entire process.

The O’Neal-Beck team can deliver capital projects for industrial manufacturers in Mexico, offering integrated design and construction services for grassroots facilities, expansions, and up-fits. We incorporate overall project

planning, conceptual design, architecture, engineering, procurement and construction to create safe, cost-effective capital solutions for our clients expanding in Mexico. The team will take a flexible approach to project delivery, while providing our clients with a single point of contact.

We regularly partner with Fortune 500-sized companies to successfully deliver a wide range of project types and sizes, on time and on budget. We integrate and apply world-class design and construction procedures, practices and processes to any project outside of the U.S. The O’Neal-Beck team can deliver successful projects in the $5 to $100 million range in Mexico, and we offer local knowledge of business practices, codes, customers, and the subcontractor and supplier market.

Using our SCOPE and DProfiler software in the initial stages of our preconstruction services, we can create a 3D model with associated costs in real time, allowing our customers the ability to make crucial decisions regarding a project’s scope, budget and schedule. We also offer the flexibility on different project delivery methods.

Services Offered

• Scope development

• Preconstruction program management

• Site selection assistance and evaluation

• Feasibility analysis

• Architecture (programing and master planning)

• Detailed engineering

• Procurement

• Construction

• Safety management

• Equipment relocation and installation

• Utility and manufacturing infrastructure


VALUE PROPOSITION

• Full EPC project delivery

• Integrated design, procurement and construction

• Proven efficiency and reliability from U.S.-based engineering design and program management through a well-coordinated and process driven model

• Focus on early scope, cost and schedule definition that streamlines land acquisition, negotiations, permitting and overall project delivery

• Front-end engineering, design and construction for capital projects in the U.S. and Mexico

• We provide the basis of design and scope development work and then coordinate with Mexican-based contractors to provide a proven design platform integrated with Mexican standards for design and construction without adding costs

• We provide world-class design adapted to Mexican construction methods

• The O’Neal-Beck partnership allows for this efficient design model coupled with real cost from local contractor based in Mexico

• Flexibility on different project delivery methods

• Geographic location: Both O’Neal and Beck are based in the U.S. with a location and resources in Mexico City

ABOUT THE O’NEAL-BECK TEAM

The O’Neal, Inc. and Beck International de Mexico team offers clients full EPC services as a single source for delivering complex capital projects for industrial manufacturers in Mexico. Our team offers integrated design and construction for grassroots facilities, expansions, and upfits. The O’Neal-Beck team integrates overall project planning, conceptual design, architecture, engineering, procurement and construction to create safe, cost-effective capital solutions for our clients in Mexico. We take a flexible approach to project delivery, while providing our clients with a single point of contact.

The O’Neal-Beck team can integrate and apply U.S. design and construction procedures, practices and processes to any project outside of the U.S. We can successfully deliver projects in Mexico, and we offer local expertise of business practices, local codes, dealing with utility companies and other government agencies, the subcontractor market and construction standards.

The unique combination of two seasoned firms with extensive experience in complex capital projects enables us to provide our clients a precise project plan and delivery. We have a long track record of working with manufacturers on greenfield projects and expansions. Many of the prominent global automotive businesses turn to O’Neal for services in North America, including: BMW, Robert Bosch Corporation and Michelin. Beck Group has over 20 years of delivering successful design and construction projects in Mexico for clients such as General Electric, Motorola, IBM and Mitsubishi-Chrysler.

The O’Neal-Beck team focuses on the business of project delivery. By integrating procedures and technology, our clients benefit from a true collaboration of disciplines for projects in Mexico.


Services Offered

• Site Selection Support and Assistance

• Project Management

• Project Planning

• Design (Architecture and Engineering)

• Procurement

• Construction

• EPC Project Delivery

• Safety Management

• QA/QC

• Equipment Relocation and Installation

• Facility Expansions and Retrofits

Considering a project in Mexico? Contact us at [email protected].


MEXICO CITYJuan Salvador Agraz No. 50Suite 603Col. Lomas de Santa FeMexico D.F. 05300

10 Falcon Crest DriveGreenville, SC 29607864.298.2000

GREENVILLE

Project Delivery in MexicoFULL PROJECT DELIVERYO’Neal and Beck International focus on the business of project delivery–integrating overall project planning, design and construction to create cost-effective capital solutions. With all of our design and construction professionals in-house, our clients benefit from a true collaboration of disciplines.

PRECONSTRUCTIONThe O’Neal-Beck International Team leverages design and construction expertise to develop project definition, scope and cost at the earliest phase of a project. Our proven process can identify and quantify clients’ project needs quickly and accurately. This allows clients to develop or confirm funding and schedule duration for their project prior to full capital commitment—guaranteed.

GUARANTEED COST AND SCHEDULEUnlike most in our industry, the O’Neal-Beck International Team can guarantee a cost and schedule for project delivery. Our expertise and due diligence in the Preconstruction phase allows us to be confident in our cost for total project delivery.

TECHNOLOGYThe O’Neal-Beck International Team applies the latest technology from the very beginning of a project. We offer DProfiler/SCOPE, Revit, Primavera, Timberline, BIM 360, laser scanning and other tools to ensure smooth project delivery.

EXPERIENCETogether, the O’Neal-Beck International Team have over 140 years of experience in successfully delivering capital projects in diverse industries worldwide. We specialize in complex design and construction.

OUR PEOPLE, OUR VALUES, OUR CULTUREOur people are our biggest asset. As an employee-owned company, O’Neal and Beck International people have a long-term stake in client satisfaction. Although we are not a small company, working with our team gives you that small business feel. Clients experience a culture that is customer-oriented, accountable and professional.

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Design and Construction of Manufacturing Plants in Mexico · o’neal-beck // design and construction of manufacturing plants in mexico ... of manufacturing plants in mexico // 2