British Oxygen Corporation (BOC)
This was during a time of fast growth in the Tijuana industrial market and labor turnover rates in the Mesa de Otay area were up to 10% per month, in some cases.
British Oxygen Corporation (BOC) required a clean room operation for some assembly.
BOC decided that they needed to locate in a labor rich market (a laborhood) with little competition for the workers because their process and training we’re too expensive to handle High turnover rates. This was a relatively small operation with only about 30,000 ft.² and a couple dozen emp[oyees to start, and it did not make sense to hire a top notch human resources leader, a material resource planning person, legal and accounting pros and a logistics manager with import/ export expertise in the short term.
But the Standard Shelter agreements at the time we’re designed to keep Shelter clients indefinitely even after the company would have worked out the kinks and had over 100 employees, which was the typical threshold for going “on your own” without a shelter. Many of the agreements had cancellation causes with 30, 60 or 90 days notice, but this was illusory. It was impossible to actually cancel the agreements because the fine print required the tenant to liquidate all shelter employees in order to cancel. Under Mexican law employees earn a three months severance minimum after three months working for company and after adding 20 days per year to that severance it becomes extremely expensive to transfer the employees to a new corporation.
The Solution – How We Helped
Maquila Properties was aware of a clean room that was soon to be dis-occupied by the previous tenant, Teledyne, who was going to sell the modular components. Instead the clean room was purchase in place saving both entities money. It was modified slightly to meet FDA requirements and soon validated to manufacture the components.
JP de Kervor worked with the landlord on a new Shelter program that incorporated a new entity dedicated to the client, that then hired the employees. All the books were open and rather than charge a flat fee per direct labor hour, the client paid a fee over the actual cost to cover management.
A couple of years later, upon cancellation of the shelter agreement, the owner/shelter operator, Cost Plus, would transfer ownership for the Mexican Corporation to the US company for predetermined amount based on how long did agreement was in place. After two years the purchase price was one dollar. All of the employees including administration, accounting, etc… were already employed by the corporation.
It was a smooth transfer and no severance costs were incurred.