Do you want to start a business in Mexico but you are skeptical about it? If YES, here are the pros and cons of doing business in Mexico. With an attractive population of over 120 million, Mexico has a market and an economy comparable to many 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. Also note that Mexico is the third largest trading partner of the United States at around $671 billion traded in 2018 and is the world’s fifteenth largest economy.
According to reports, twenty-two American states chose Mexico as their first or second most important destination for export. Annually, United States citizens and Mexicans travel back-and-forth by the millions, spending billions of dollars on tourism.
In 2016 alone, about 31 million Americans travelled to Mexico and almost 19 million Mexicans visited the United States. That makes it—after Canada—the second largest source of international travellers to the United States. Owing to these facts, more and more business people are considering whether to do business in Mexico. It is a thriving, developmental economy that offers more stability and safety than many other nations of similar status.
Pros of Doing 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.
Table of Content
- 1. Mexico is an emerging economy
- 2. Extremely competitive cost of labour
- 3. Legal protection for IP
- 4. Very favourable exchange rates
- 5. Abundance of skilled workforce
- 6. Access to more capital
- 7. Strong manufacturing and business environment
- 8. A stable economy
- a. Culture shock for some agencies
- b. Registering property in Mexico can be equally challenging
- c. Crime
- d. Complex process to start a business
- e. Corruption
- f. Must use Spanish
- g. Enforcing a contract in Mexico is a daunting process
- 8. Stressful regulations to navigate
1. Mexico is an emerging economy
Once you decide to start doing business in Mexico, have it in mind that you are venturing into an emerging market where you have a ground-floor opportunity. In this country, there are still options available where you can corner the market for specific goods or services because what you offer is not readily available.
It also entails that you can be seen as the industry expert, establish your branding with ease, and then export those benefits to the other markets around the world where you’re doing business. Even if you can’t take full advantage of this benefit, the chance to build a series of partnerships is a strong enough reason to consider a presence here.
2. Extremely competitive cost of labour
Also note that the cost of labour in Mexico is comparable to what companies find when establishing operations in China. According to reports, the average wage is only 20% more than what Chinese firms offer, and there is a significant benefit of being present in the North American economy.
Howbeit, even if you exclude the threat of tariffs from the U.S. by eliminating that market completely, the benefits of having access to Canada can be quite lucrative for a business of almost any size.
3. Legal protection for IP
Note that 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, which can help protect your company’s patents.
4. Very favourable exchange rates
As of August 12, 2019, the conversion rate for $1 equals 19.57 Mexican Pesos. Note that it this also means that it is a lot cheaper for many international businesses to create new opportunities to reach customers in Mexico. According to reports, this exchange rate has stayed relatively stable since 2018, and this means you have a reliable reduction in the cost of construction needs, equipment acquisition, and real estate expenditures.
In addition, your purchasing power remains constant if you keep the money obtained in Mexico for reinvestment, and then there is always the opportunity to funnel more capital into the country to expand operations as needed.
5. Abundance of skilled workforce
When a company starts doing business in Mexico, they will discover that the labour force in this country is highly skilled in a variety of industries. There are a handful of available workers in many STEM fields, and companies don’t need to worry about the legal status of the employees they hire to the same extent that they would in the United States.
In addition, there are advantages in regulations as well, with permitting requirements costing much less than in other nations. Environmental and safety rules are more relaxed here as well, which contributes to a lower overall overhead cost too budget each year.
6. Access to more capital
Since Mexico is an emerging market, you will always find that there is more access to new capital here than in more mature landscapes. This simply means that you have more ways to boost your credibility in your industry. However, as the economy becomes more developed, an increase in available funds will make it easier to expand your reach or offer products in other markets.
Also note that you will witness boosts in product availability and innovation potential. That’s why industries who feel like they’ve reached their maximum potential in an established market make their way into this country to see what can happen.
7. Strong manufacturing and business environment
Owing to both the proximity of Mexico to the United States and the trade agreements in place, importing goods from Mexico is always very promising for many companies. But what’s more, Mexico has a strong manufacturing proficiency.
Typically, a factory does not exist in a vacuum. It requires skilful workers to do production and technicians to repair equipment. It requires vendors that can provide 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.
8. A stable economy
Note that when the rest of the world went into a financial crisis in 2008, there were only two countries that remained relatively unscathed by the change in market status: Australia and Mexico. According to reports, the stability in their economy comes from a diversified portfolio in the banking sector for the country.
Even when the threat of a recession does arrive, the risks are spread out enough to limit the potential of financial loss. Also note that this country grows when the rest of the world sees an upward push of GDP, so that makes it an excellent place to expand your current business or invest in new resources.
Cons of Doing Business in Mexico
There are also some drawbacks or disadvantages of doing business in Mexico. Here are a few challenges to be aware of.
a. Culture shock for some agencies
Meetings more or less start slowly when you begin to conduct operations in Mexico. You’re not going to be making any decisions until you reach the end of that discussion as well. Howbeit, most businesses are surprised to find that there is a significant gap between the leadership team and the various levels of management that are present in the average business.
A lot of companies depend on the decision-making power of a single person instead of the entire Board of Directors. If you’re not used to that process or your business is not structured to accept it, then your first days of development could get off to a hard start.
b. Registering property in Mexico can be equally challenging
Registering a property when looking to start a business in Mexico can be very daunting and most people are adviced to get moving on this issue at least two months in advance. The average amount of time to register a property in the developed world is 26 days, but it is more than 70 days when trying to establish a company to work with Mexican consumers.
Have it in mind that acquiring a certificate that represents your good standing with the water utility and the zoning certificates tend to be the biggest time-wasters of them all. This disadvantage is one area where a single mistake could set back your time frame for opening by several months.
Indeed Latin American drug lords such as Joaquin “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. Indeed, in Juarez and other border cities, drug dealers and smugglers contribute to crime in the city.
However, most factories in the area have security inside and outside the plant, and they screen anyone who enters. Also, visiting personnel have the option of travelling with security if necessary. But as is the case in America, it always depends on where you travel. Some places are quite safe whereas others are dangerous.
d. Complex process to start a business
Even though it is still easier to start a business today in Mexico than in previous years, the process is still quite complex. You are expected to have some connections in place to create a smooth process. There are several procedures that you must navigate, which can be somewhat tricky if you’re not familiar with the requirements.
If you make a mistake during the initial steps, the government could make you start over from scratch. Then there are the “unofficial” government officials from some of the cartels that you’ll need to manage as well.
According to reports, Mexico ranked 103 out of 175 countries in 2013 for the levels of corruption that were present in their public sector. Transparency International publishes a Corruption Perception Index each year, and the nation scored 35 out of 100 that year.
Higher scores indicate less corruption, whereas a score of 0 would indicate the worst corruption possible. In 2018, their rating dropped to 28, placing them 138 out of 180 countries. In comparison, the United States scored a 71 and Canada placed 9th overall on the list with a score of 81. Denmark had the top marks with an 88, followed by New Zealand at 87.
f. Must use Spanish
Spanish is the language of business in Mexico. Even though 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.
For instance, 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.
g. Enforcing a contract in Mexico is a daunting process
Note that it takes over 400 days to enforce a contract when you start doing business in Mexico. Your company will be expected to follow 38 separate procedures to have a successful outcome because of this disadvantage. Also note that the complexity of this system, even with the favourable exchange rates, can be enough to discourage some companies from pursuing an opportunity in this country.
Howbeit, the only benefit in this specific point is that the process to resolve insolvency is much smoother than it is in the Caribbean or South America, taking less than two years to complete instead of the three years that occur on average.
Agreeably, the safety and environmental regulations are an advantage to many businesses in most industries in Mexico; however, the taxation rules are not so favourable. The only country with a more complex tax code is the United States. Companies spend an average of 337 human hours each year to prepare their returns.
Also note that the corporate tax rate typically hovers around 30%. You’ll find that the social security and VAT filing procedures can take up a significant chunk of your time as well. It gets easier once you get used to the process, but the first year can be a tough one if you’re a small business owner.
Note that the pros and cons of doing business in Mexico depend on three crucial points: what you hope to accomplish, the capital you have, and what your business goals are. Howbeit, if you can adjust and navigate the linguistic, cultural, and administrative differences successfully, then this option can be an extremely rewarding experience.
- How to Start Your Own Alcohol Brand (Vodka or Spirit) - February 25, 2021
- How Long It Take to Reach Terminal Velocity When Skydiving - February 25, 2021
- How Do Animal Sanctuaries Make Money? (15 Smart Ways They Profit) - February 25, 2021