The US border with Mexico frequently comes to the fore of political discussions, but what is often overlooked by Americans is the enormous business opportunity represented by Mexico. As the rancor of public policy debate reaches a fever pitch, it’s worth examining the pros and cons of doing business in Mexico.
Why Worry About the Pros and Cons of Doing Business in Mexico?
A population of 120 million in Mexico means that there is approximately an equal number of wallets in the region. Just Mexico City alone has 9 million residents (or 21 million if you include the metropolitan area). That makes it one of the world’s largest cities and is about as populous as Michigan or New Jersey.
Twenty-two American states count Mexico as their first or second most important destination for exports according to a 2016 report from export.gov.
US citizens and Mexicans also travel back-and-forth by the millions, spending billions of dollars for tourism. In 2016, 31 million Americans traveled to Mexico, according to Statistica. And in the same year almost 19 million Mexicans visited the United States according to export.gov. That makes it—after Canada— the second largest source of international travelers to the United States.
Given these facts, more and more business people are considering whether to do business in Mexico.
There are many great reasons to do business in Mexico—from the geographical location to the business infrastructure. Here are a few of the advantages of doing business in Mexico.
Mexico Is 0 Miles Away
Given that Mexico, like Canada, shares a border with the United States, doing business there is much easier than in distant countries.
Its time zones correspond to the Central, Mountain, and Pacific time zones of the United States. So it’s easy to hop on the phone with Mexican business partners and work out issues during normal business hours. In contrast, with business partners in Asia, time zone delays and late night meetings are a constant struggle.
Further, the proximity of subsidiaries in Mexico to US headquarters allows managers to visit easily and frequently. A manager can be on site within a few hours.
In the case of border cities like Juarez and El Paso, workers can even do a daily commute. Francisco Solis Payán, managing director of Consultores Tributarios de Negocios, S. C. an accounting firm based in Juarez, says that every day around 2,000 people commute from their homes in El Paso to their workplaces in Juarez and then return home again in the evenings.
Try commuting to your factory in China every morning!
Payán said that there is so much cross-border interaction, that the Mexicans living along the northern border are known in Mexico as “border citizens” due to their knowledge of the US and their intercultural aptitude.
Access to Customers
Everyone knows about NAFTA, but Mexico also has a number of import-export treaties with countries around the world. So when investors set up factories in Mexico, they are often not just eyeing customers in the USA. They are looking to take advantage of free trade agreements to export their products across the globe.
Further, Mexico’s 120 million consumers make it a promising local market for a variety of industries.
“There is an enormous number of consumers,” said Felipe Dominguez Pulido of Moore Orozco Medina. “People in Mexico have money and they’re willing to spend it on American goods and services… there are more than 100 million Mexicans consuming goods and services, so there’s no company abroad that doesn’t have a market in Mexico.”
For example, he said, Kia vehicles were initially only imported, but they sold far above company predictions, so Kia started manufacturing in Mexico to reach the market more effectively.
There are a wide variety of business opportunities in Mexico. According to Export.gov, the most promising industries for export to Mexico include agribusiness, airport and ground support equipment, automobile parts and supplies, education and training services, franchising, housing and construction, packaging equipment, plastics, security and safety equipment, technology, transportation and infrastructure equipment.
Strong Manufacturing and Business Environment
As mentioned above, both the proximity of Mexico to the United States and the trade agreements in place make importing goods from Mexico promising for many companies. But what’s more, Mexico has a strong manufacturing proficiency.
A factory does not exist in a vacuum. It requires skillful workers to do production and technicians to repair equipment. It requires vendors nearby that can confer with you on your needs and provide materials just in time. It also requires road, rail, and seaport infrastructure as well as utilities.
So setting up manufacturing requires not just a building and workers. It requires an entire manufacturing ecosystem. Fortunately, in Mexico the skills and the infrastructure are already in place, which make the country great for many types of manufacturing.
According to the US Department of Commerce (PPT), various regions have different manufacturing competencies. For example:
- Guadalajara: “Mexico’s Silicon Valley” produces electronics, industrial process controls, food processing equipment, etc and is home to the largest expo center in Latin America. International companies include Oracle, HP, Intel, and IBM.
- Monterrey: Home to over 1,800 foreign companies including Mattel, Coca-Cola, and Whirlpool, Monterrey is responsible for 11% of Mexico’s manufacturing. Industries include automotive, appliances, packaging, construction materials, and biotechnology.
- Tijuana: With a manufacturing workforce of more than 160,000 employees, Tijuana can get it done. Main industries include medical, electronics, plastics, and automotive. International companies include Toyota, Samsung, and Kyocera
- Mexico City: A manufacturing hub centrally located by major manufacturing centers such as Toluca, Puebla, and Queretaro.
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Besides the manufacturing proficiency and infrastructure of Mexico, there are also many other advantages for businesses such as special tax policies. The financial and business laws in Mexico are well-established and well-documented.
Also legal compliance can be done over the Internet rather than in person or by snail mail, which greatly increases efficiency.
Although the legal environment of Mexico may be unfamiliar to U.S. businesspeople, fortunately there are a good selection of Mexican tax and business consulting agencies across Mexico and the United States to help you take advantage of government policies and to stay out of trouble.
Legal Protection for IP
In many countries intellectual property rights have very little protection. Starting production in those places is almost a guarantee of losing your intellectual property. However, Mexico has strong legal protections for intellectual property rights, said Pulido, which can help protect your company’s patents.
Not everything in Mexico is sunshine and . . . resorts. There are also some drawbacks or challenges of doing business in Mexico. Here are a few things to watch out for.
Avoid the Bad Guys
In every country you need to be careful about who you work with in order to avoid being cheated. But in Mexico there’s a further reason to be careful. It’s vital for your company’s legal representative to maintain a good record with the government, and having shady connections can hurt that record, Pulido said.
So, if you are doing business with a supplier that is connected to a gang network, your reputation with the authorities could be affected. That just adds another reason to why, as in every country, you should be careful about who you work with.
The names of Latin American drug lords such as Joaquín “El Chapo” Guzmán have become household names. That leads many people to consider crime as one of the greatest risks of doing business in Mexico.
True, in Juarez and other border cities, drug dealers and smugglers contribute to crime in the city.
However, Payán says that factories typically have security inside and outside the plant, and they screen anyone who enters. Also, visiting personnel have the option of traveling with security if necessary.
But as is the case in America, he says, it all depends on where you travel. Some places are quite safe whereas others are more dangerous.
“We work in Juarez, and we don’t have guards,” he said. “We travel anywhere we want in the city. That’s the same for people traveling here from El Paso.”
“It’s safer now but, of course, you have to be careful with what you do,” he said. “Just like in Chicago there are places you shouldn’t go because the areas are not safe. It’s the same here.”
Ironically and sadly, the day after we spoke with Payán, the mass shooting occurred in El Paso right north of the border. That just goes to show that safety risks can be anywhere, and people should always be aware of dangers.
A great resource for knowing more about crime risks around the world is Travel.State.Gov.
Getting Permits Can Be Slow
As is the case with government departments in many countries around the world, getting permits and doing official business can take a long time, Payán said. When requesting permits expect delays.
Government Policies Can Be Hard on Business
According to The World Bank, Mexico has an Ease of Doing Business Score of 72 out of 100. For reference, it rates India at 67 and the United States at 83.
That’s a fairly good score, but government policies can contribute to it being lower than some other countries.
Hector Ibarra of Parker Poe says, “From a legal standpoint, labor laws favor employees over employers.” Sometimes that can make navigating labor relations difficult.
On the one hand, workers may suddenly decide they don’t like to work for you and leave, but, on the other hand, due to regulations, he said, it can be hard for employers to get rid of bad employees.
“There is a lot of turnover. Workers will switch for a little bit higher pay,” he said. But “The cost of terminating an employee is high.”
Not only can some policies be unfriendly to business, but just the fact that the entire regulatory environment is different from the United States can be a major challenge.
Roberto Gallardo of De Anda, Torres, Gallardo y Cía in Mexico City said, “There are differences in the way accounting is done as compared to US standards, mostly when it has to do with Tax and Payroll issues. This is another reason you need to be advised by the right accounting, tax and business consultants.”
Fortunately, there are many legal and tax consultants available in Mexico and the United States to help you avoid the minefields and stay on track towards profitability.
An Uncertain Future
Investors are currently viewing Mexican investment with caution, Ibarra says. Investors are most interested in the renegotiation of NAFTA, but also elections are coming up in the US and Canada. Further, a newly elected president in Mexico is shaking things up.
With Donald Trump‘s renegotiating trade treaties around the world, many companies’ supply chains are in flux. This also holds true for negotiations regarding NAFTA / USMCA.
Depending on the outcome of these negotiations, some types of investment in Mexico may be more profitable in the future than others.
But then again, depending on the outcomes of the elections in the U.S. and Canada, many policies may be up for reconsideration.
Similar to the current U.S. president, Donald Trump, Mexico’s new president, Andrés Manuel López Obrador is also known as a populist.
He’s popular with his base for austerity measures, such as capping salaries of government officials, laying off non-unionized federal workers, and even turning the presidential palace into something of a tourist destination. But his policies further favoring employees over employers and moves such as canceling construction of the new Mexico City airport, cause investors some uncertainty.
Must Use Spanish
Spanish is the language of business in Mexico. Although Mexico is home to millions of incredibly knowledgeable and skilled bilingual workers especially in areas with the most foreign investment, Spanish is still the official language.
Payán said, “When the tax authority reviews any company, the tax authority will request documents. If they are in English, they need to be translated into Spanish — records, books, everything — needs to be translated into Spanish.”
Need to Translate into Spanish?
Tips for Doing Business in Mexico
Above we have detailed some of the pros and cons of doing business in Mexico. Below we will share a few tips for doing business in Mexico.
Have a Presence in Mexico
U.S. companies doing business in Mexico should have a physical presence in Mexico, buyers will feel more confident that training, supplies, and service will be available and reliable.
Have Local or Regional Representatives
Letting customers deal with local or regional representatives can be more effective than operating out of a single national headquarters.
Get All Relevant Materials Translated to Spanish
Even though millions of Mexicans have strong proficiency in English, everyone prefers to read advertisements, documentation, and other content in their own native language. Translating websites, brochures, catalogs, and other materials is a must.
Need a Bilingual Website?
Mexicans prefer to do business with friends. Be friendly, build relationships, be trustworthy, and provide an excellent value to your Mexican business partners. Friendship and trustworthiness is universal, and it will especially help you with your work in Mexico.
Take Advantage of Mexican Ingenuity
When doing business in Mexico, cultural differences can lead to surprises. Instead of blindly forcing your headquarters’ mentality on your Mexican workers, be flexible. Take advantage of the unique strengths of the local talent.
Ibarra says that Mexican workers are smart and inventive. They can do many things with few resources, and they are flexible. Therefore, many innovations come out of Mexican factories when the employees are allowed to innovate.
Ibarra says, “It pays to be flexible. See what your local staff is good at, and make sure to take advantage of that.”
Do Due Diligence
“Surround yourself with the best counselors you can have,” Ibarra says. “There are many problems that may arise, but if you have an experienced professional with you, they may have dealt with those very issues many times before.”
A variety of resources exist for helping business people understand how to effectively do business in Mexico. A good place to start is by checking out the following resources.
- Ease of Doing Business rating according to The World Bank
- Export.gov Mexico Travel and Tourism
- Export.gov Doing Business in Mexico
- Travel Advisories
- Travel.state.gov U.S. Visas in Mexico (PDF)
- Doing Business in Mexico, Moore Stephens (PDF)
This is only a start. Please share your favorite resources about doing business in Mexico by leaving a comment below and we may include it in this article.
Darren Jansen, business development and content manager for IVANNOVATION, has a lifetime love for tech and languages. At IVANNOVATION he helps software developers get professional localization for their apps, software, and websites. On his time away from the office, he can be found hiking the Carolina wilderness or reading Chinese literature.