Chapter 1: Establish a Credit Insurance Company to Secure Export Orders

Setting up financial security for export orders requires the establishment of a Mexico Export Insurance Company (MEI). MEI will function as a credit-verified service company, ensuring that purchase orders from buyers are thoroughly verified. Only approved buyers will be eligible for insurance coverage within a specified period of time.

MEI will rely on credit bureau data from the USA to make determinations. Once insured, factories or export companies will be guaranteed payment after shipment. This coverage can be on a purchase order (PO) basis or for the overall period of time, depending on the total amount to be covered.

It is important to adhere to Mexican insurance laws when establishing MEI. If necessary, the company can be based in the Caribbean area to comply with regulations. It would be advantageous to seek government incentives for this critical step in boosting exports while ensuring cautious operations to prevent fraud.

Insurance Costs and Payment

Typically, insurance costs range from 1% to a maximum of 1.5% of the total purchase order value. Payments can be made in two ways: 50% upon insurance or the balance upon export, or an annual fee based on the estimated total amount, paid monthly or quarterly. Factory details for each PO can be submitted through a website application with digital confirmation.

Funding and Partnership

The total funds required for setting up MEI will be determined by government regulations. Collaboration with leading American credit and factoring banks, such as CIT or others with Mexico units, can strengthen the partnership. MEI can also form multiple shareholder agreements with Mexican banks and insurance companies.

Eligibility and Financial Support

Only insured purchase orders and the factory or export company involved will be eligible for financial support from banks or trading houses for PO financing or payment guarantees. Another financial institution can be established specifically for trade finance to support factories and export companies based on each purchase order.

Chapter 2: Create a Trade Finance Company to Provide Funds for Qualified Export Orders

To provide finance for qualified export orders, the establishment of a Mexico Trade Finance company (MTF) is proposed. Initially, a target of 100 million funds can be set, but starting with a 10 million quota is also feasible.

The ideal approach is for the government to contribute 20% as seed money, serving as a guarantee, while the remaining funds are provided by financial institutions and banks. The interest rate on the loan can be Libor + 3-5%, depending on the specific case. However, all PO financing will be subject to coverage by MEI. Interest will be calculated based on the time and amount utilized by the factory or export company.

MTF's Role and Loan Officer Assignments

MTF's role extends beyond cash loans; it can also facilitate guarantees between factories and suppliers for various services. Loan officers will be assigned to a specific number of factories and companies, with rotations taking place annually to prevent internal fraud. Regular monitoring and monthly double checks of loans should be conducted to avoid any potential corruption. Establishing a working manual for loan officers and management to follow is necessary.

Guarantee Charges and Loan Monitoring

Guarantee charges can range from 1-2% of the total purchase amount. Loan officers need to receive weekly reports on the progress of PO processing from the factories and export companies. Valuation should occur on a weekly basis. The factory and export company must disclose their fund usage and materials, addressing any quality issues promptly between suppliers and purchasers.

MTF's Guarantee Function

The guarantee function of MTF can streamline order processing, reduce financing costs, and enable pre-approval based on set criteria. This will boost production flow and expedite exports.

Support for Startups and Youth Entrepreneurs

MTF can also provide an initial quota of funds to qualified youth and start-up companies to support their export endeavors. This area entails higher risks, and government funds can be used to cover potential losses. These qualified individuals and start-ups will undergo thorough training and be subject to accounting monitoring for fund usage. MTF officers or appointed CPAs can co-sign fund usage, ensuring transparency and accountability.

Alternative Options: Guarantee Company Setup

If direct funds cannot be obtained, the option of establishing a guarantee company for the PO process between factories can be explored. The setup process for a guarantee company in Mexico must adhere to government regulations.

Chapter 3: Set Up an Export Service Company to Support Effective Supply Chain Management and Automation Efficiency

Mexico Export Service Company (MES) aims to enhance supply chain efficiency and automation in the export industry, initially focusing on leather goods such as shoes and leather finished products, and later expanding to other export sectors like apparel.

MES will operate in two primary areas: services and trading.

Services

• Export Procedures: MES will handle all the necessary paperwork and customs clearance for import and export operations, providing professional assistance to small companies and startups.
• Logistics Service: MES will assist with import and export logistics, including booking space, trucking, and global shipping. Fees will be charged for both import/export procedures and logistics, typically ranging from 1-2% for procedures and an additional percentage for logistical support.

The principle of MES is to charge a small fee while targeting high volumes of business throughout the year. It aims to support the growth and flourishing of the export industry.

Continuous training and experienced supervisors will be crucial to avoid mistakes and errors in service provision. Comprehensive record-keeping in both physical and digital formats will be maintained for several years. MES will provide monthly summaries of all services and paperwork to factories and export companies for easy review.

Trading

• Market Research: MES will study the market, source necessary materials and trims, and build a comprehensive fabric and trim library for factories, designers, and export companies. The goal is to provide easy access to sample yardage and meet bulk demands in a cost-effective and timely manner.
• Machine and Parts Imports: MES will conduct research to assist factories in obtaining updated automation machinery at lower costs by selecting overseas suppliers from Europe and Asia. MES will establish a fast-track, integrated parts supply system.
• Sewing Parts and Materials: MES will maintain stock of sewing parts and materials and sell them at competitive prices with a maximum margin of 15%.

If possible, MES will explore the establishment of an export zone where factories can set up operations without paying import duties, enabling duty-free exports to the USA and other countries.

MES will also engage with the Mexican government to initiate discussions with the USA regarding new NAFTA terms that allow for increased manufacturing in Mexico while maintaining duty-free status. The specifics, such as import value thresholds and corresponding duties, will vary by product and require further examination.

Fundraising and Co-founders

MES aims to start with a small team of 5-10 people and seek 5-10 co-founders who can contribute seed money. Co-founders should possess strong industrial and financial backgrounds, relevant connections, extensive experience in trading and logistics (over 15 years), ownership of leading companies in the industry, and financial qualifications such as being a bank executive or CPA.

The target fundraising goal for MES is $1 million within 12 months through a second round of fundraise involving share expansion and government grants. Subsequently, MES plans to raise up to $10 million in funds through investors or bank loans to increase stock, machinery, and parts to further boost exports.

MES will seek to convince banks to provide loans if MES can contribute 20% of the total purchase as its own funds, with the remaining amount covered by the bank to accommodate high demand scenarios.

Chapter 5: Collaborate with the Government Commerce Department to Redefine Duty-Free Terms under NAFTA

The goal of redefining duty-free status for products made in Mexico is to remove barriers that limit competitiveness and attract investments in manufacturing.

Proposed measures include:

• Material Allowance: Allow foreign materials to account for up to 60% of the total cost of the products to qualify for duty-free status under NAFTA when made in Mexico.
• Duty-Free Import: Grant duty-free status to all materials, trims, and machinery used for export purposes in Mexico, following strict customs regulations.
• Gradual Reduction: Implement a plan to gradually reduce the foreign material requirement from 60% to 50% over a 10-year period, encouraging local material suppliers to establish factories in Mexico and complete the supply chain within North America.

These efforts, led by the government’s commerce department, will aim to boost Mexico’s competitiveness in the global manufacturing market while encouraging a self-sustaining supply chain.