Those that succeed in managing manufacturing in Mexico are aware of cultural and other contributing factors.

Tecma Group of Companies:

Hello and welcome to another installation of Tecma Talk podcasts, during which we speak to experts that have knowledge on issues that are related to manufacturing in Mexico, directly or indirectly, both from outside of the Tecma organization, as well as on the inside. Today we have an outside expert with us. His name is Gerardo Teuttli. Gerardo is someone with a vast amount of experience working in manufacturing on both side of the US-Mexico border. That’s why today’s podcast is sure to be an interesting and an instructive one. He currently works for UTC Aerospace Systems. I will introduce him, and, Gerardo, please introduce yourself, and give a little bit of your background in order that our listeners contextualize where your commentary is going to becoming from, as well.

Gerardo Teuttli:

Very good. First of all thank you for the opportunity to speak to your audience. My name is Gerardo Teuttli. I am currently working for United Technologies Aerospace System, as an engineer in financial compliance, and as a senior manager, in San Diego, California. I have been in the aerospace industry for about twenty years. I started by working for General Electric Aircraft Engines in the late 90s. Then, I started working for the Goodrich Corporation. I was their plant manager for their operation in Guaymas, Mexico. I was in that position for nine years. Then I moved to Phoenix, Arizona with the same company as a program manager responsible for consolidating operations, and moving some work between different sites, including the US and the Mexico site. For the last three years, I have been working in aerostructures. Goodrich was acquired by United Technologies, so now I am a part of the new United Technologies Aerospace Systems Division.

Tecma Group of Companies:

That is a very extensive background. Again, with a heavy stress on the fact that you have been in involved in the operating and managing manufacturing in Mexico for many years. Basically, this leads to the crux of the discussion today. The question that we ask from a very broad, thirty thousand foot perspective, and then we will get into some specifics, in your words what would be the biggest difference between supervising and managing manufacturing operations in Mexico, and doing the same in the United States?

Gerardo Teuttli:

There are two major differences that I have experienced. The first is the culture. Even if we are so close geographically, the United States things are very different regarding
the way people behave and the expectations that people have. There is a lot more individualism in the United States. Also, there is a lot more “distance to power” as researchers of these things that study them call them. So it is very different for a manager to interact with a team of people in the United States, and to do so with a group of people that have been born and raised in Mexico. That is one of the biggest challenges for US executives of starting an operation in Mexico, I would think. Also, moving from Mexico to the US requires a lot of judgment. Another big difference is resources. Certainly, when we started in Guaymas, Mexico, we had an operation that was really small. Guaymas used to be a fishing town. There were no people with experience in manufacturing for the aerospace industry, so we had to develop them from scratch. When you come to the United States and you look for NDT inspectors, or laboratory inspectors, just in aerospace, here you have a multitude of resources available for hiring. Things are getting better now for those managing manufacturing in Mexico. Companies are located in a few Mexican aerospace clusters that have matured over time, but,
still, the resource differences are big.

Some other differences have to do with cost, for example. While managing manufacturing in Mexico, executives will find that labor is cheaper in Mexico, and there are some raw materials and services that are significantly less expensive in Mexico. Electricity, however, which is a cost driver for many businesses, is significantly more expensive in Mexico. The differential can be up to forty percent. Depending on what you do, depending on what the business cost drivers are you may find different opportunities. Even within labor costs, there are differences. If you are moving to the region across the border, there is a differential cost if you go south. If you go as far as Guaymas, there is a differential cost. If you invest in a city like Reynosa or Monterrey, or Queretaro or Mexico City, you will get a differential cost. If you go south, you may find labor that is not highly skilled, wire harnesses comes to mind. If you go to Chiapas or the Yucatan, for instance, labor costs will only be about sixty percent of what they would be in the border region. Even regarding cost, depending upon where you go, you will find different mixes of
skills and costs.

Tecma Group of Companies:

You mentioned a couple of things that are very interesting. I’ll go with the first one, and then will go with the second one to follow. For instance, let’s look at someone who is currently in a management position working with staff in a production facility in a place such as Elgin, Illinois, for instance. Let’s say that the company that that individual works for decides to do with what companies that you have worked for in the past have done, i.e., set up manufacturing operations in Mexico. What would be the advice that you would give to the Americans that are the first to make the trip down to Mexico, and are the first ones to interact and to set the tone and the stage for things to continue over time? Given the cultural differences that you referenced earlier, what kind of things that you recommend that they keep in mind when they are addressing that “power-distance” situation that you pointed out?

Gerardo Teuttli:

For one, be very sensitive to people’s feelings when managing manufacturing in Mexico. This is important, because, as I mentioned before, distance to power is very important in Mexico. Most often, people will not often tell their boss that they are wrong. If you are a Mexican person working on an assembly line, you will not, most likely, feel very comfortable with sharing your thoughts and ideas with someone that is maybe one or two levels above you. Once someone approaches you, as a manager, and gives you an idea, even if the idea is not the best, it’s good to make a “big thing” out of it. The openness should be rewarded, because, if the worker is not rewarded, it probably will not happen again. This is something that is important to keep in mind. This is especially so,
because of the language barrier. Some of the people that are closer to the operation are the people that have the best ideas and, maybe, are those that can make some of the best contributions to new processes and Mexico cost savings. They may not speak the language. So there has to be that sensibility in order to get the ideas out of everybody, and getting over the barrier of language and culture. That may open the door for reaping rewards for people coming from a different location.

Tecma Group of Companies:

Would it be accurate to say that, if you are the type of manager with an open mind, and open to suggestions from all corners, that it takes some time to create trust between yourself and Mexican workers on assembly line so that they are comfortable enough to express their recommendations or to speak freely? Would that be an accurate way of looking at this?

Gerardo Teuttli:

Yes. That is an accurate statement that brings to mind another good point. It is rather easy to find people among professional staff that speak English. They will have a better grasp of the cultural differences. They can certainly help. I would suggest that those starting up a manufacturing operation in Mexico do so by being inclusive, with, not only those that can understand both sides, but with everyone. You will really be rewarded by doing this. I have seen this several times. People that establish open communication, and try to open up to people on the shop floor,will be appreciated by the workers that will feel this. They will respond.

Tecma Group of Companies:

It’s interesting. We’ll include a link to a great book on this topic in the transcript of this discussion. There is a great book. It’s called “Management in Two Cultures,” by an author named Eva Kras. It’s a dated book. It’s old, but people don’t change that much in these ways over time. It is still a culturally relevant book. Things like: taking into consideration the things that you are saying, and reading a book like to one available through the link here on the website are things that can help people to walk into a cultural situation of which they are competely unfamiliar. Otherwise, you can be a “bull in a china shop.” I’ve seen that happen, and the results can produce less than what one would want.

You have deep experience in another area that we have not discussed previously. Having known you for many years, I know that you have experience in managing manufacturing in Mexico with companies that have operated within the context of a shelter operation, as well as those that have not. For those that do not know what a shelter operation in Mexico is, a shelter operation pretty much does everything for a manufacturer in Mexico that is not core to manufacturing and the manufacturing process. These include non value-added functions like human resources, payroll, customs administration and building maintenance. From your perspective, can you briefly explain what the pros and cons of each scenario are in a straight, frank and direct way?

Gerardo Teuttli:

Yes. I have worked on both sides. I have worked under a shelter company that will take care of all of the activities that are not involved in production. In addition to the things you
mentioned, they take care of environmental issues, permits, and a long list of other things that you mentioned, in addition to distribution and logistics. This allows you to concentrate on the manufacturing piece which is what you want to focus on.

We have the experience of currently working out of the shelter. A large operation in which we do all the functions by ourselves. I think that one of the advantages of the shelter model in Mexico is it makest things easier to start for a company that is new to having global operations. They sometimes allow you to take advantage of economies of scale. I have seen very large shelter companies that have the ability to distribute resources over a large pool of companies. This creates a lower overhead, and some improved cost efficiencies. On the other hand, you don’t have all this learning that it takes to develop in different areas, and you don’t have total control. There is, however, a continuum in which you can choose depending on where you are looking to establish a manufacturing operation in Mexico. Sometime there are different options that take the best advantages from the shelter model, or from the “stand-alone” model. Some shelter companies offer a
“one size fits all” product. With some others, you can choose and decide if you want to buy land, they will build for you. They will find employees for you and do payroll and taxes. Some shelter company contracts have clauses that will allow you to start under one model of operation and, then, migrate to another to have a stand-alone operation. So, I think that the shelter is very good. Over the long run, I have seen over and over that it is very cost efficient. This is especially true for companies that are small and medium in size. It is a very convenient way to do manufacturing in Mexico, because shelter companies bring their strengths with them which may be weaknesses for the manufacturers in that they are things that the latter does not know. I see many companies that are very large that have up to two or four thousand employees that still take advantage of the shelter model. This is even if sometimes they are multi-national and have their own stand-alone operations, they find in convenient to work with a shelter company in Mexico.

Tecma Group of Companies:

Although the term “shelter” is used in Mexico, it is not homogenous. There are various iteration of the model, and, whoever is looking to manufacture in Mexico with a shelter company, should be aware that the companies that provide this service may have a different version of the model to offer.

One last question: You mentioned the concepts of “cultural proximity and distance.” Is there one other piece of advice that you would give to you would give to that hypothetical plant manager from Elgin, Illinois that is going to set up a plant in Mexico?

Gerardo Teuttli:

The biggest recommendation that I would have is that that person do his or her homework to understand the cost that is involved, the services that will be provided, the options that exists for locations in order to try to find a shelter company, especially if a small or mid-sized company that does not have global experience is making the move. Try to work with a shelter company first by finding such a company that has experience, and a good combination of service offerings that are appealing not only for immediate needs, but also those that are going to arise over a period of five or ten years. I think that that will make it easier for a company to start.

In Mexico, there are advantages that include not only geographic location and linguistic resources. When looking at other locations, China comes to mind. It has differnt times zones. You have to form teams that have to cross the globe to support operations. Transportation costs, even for companies that plan for them, seem to surpass what was projected. Having geographic proximity makes these things convenient.

The future is in emerging markets. Companies that have been isolated a bit from the global market may find Mexico convenient as the place to start global operations. From there many other doors may open. Maybe another other geographic opportunities will open up in the future as the result of having gained international experience in Mexico? Starting close to home in a location that has many advantages is, maybe, a good first step.

Tecma Group of Companies:

That is great advice. Speaking of more advice, I am going to ask you one last question: would it be OK if, in the transcript of our discussion, I include a link to your LinkedIn page. In that way if someone has a question, they can ask you to connect and approach you with those things for which they have questions or need clarification?

Gerardo Teuttli:

Absolutely. I would be happy to assist. Having been on this journey for years, I believe that, if I have some experience that I can share with people that have interested in starting operations in Mexico, I would be happy to help.

Tecma Group of Companies:

Thank you very much, Gerardo, for joining us.

Gerardo Teuttli:

Thank you. This has been a pleasure. I look forward to talking to you again.