Mexico has been growing as an economic and investment destination for the past decade. The country has become a manufacturing hub for companies looking to set up production in locations outside of Asia. Today, more than 5,300 foreign-owned factories in Mexico produce goods such as automobiles, food and beverages, textiles, plastics and chemicals. The ease of setting up shop here is a big draw for businesses, especially considering how difficult it is to set up a company elsewhere. Doing business in Mexico has its pros and cons. Read on to learn more about the opportunities and challenges you should be aware of before starting a business in Mexico.
Pros And Cons Of Doing Business In Mexico - Expert Insights
Itâs no secret that doing business in Mexico has pros and cons. While there are many benefits to operating your company south of the border, there are also risks that you should be aware of before diving in head first.
However, before you pack your bags and head south of the border, itâs important to understand what makes doing business in Mexico challenging. Whether youâre considering opening a subsidiary, manufacturing or sourcing products from Mexico, itâs important to understand the risks and rewards of doing business in this country. Read on to get an Doing overview of the pros and cons of investing in Mexico that will help you decide if this emerging market is right for you.
Pros Of Doing In Mexico - Complete Overview
Manufacturing in Mexico has always been a topic of debate for companies based in the US, Australia and Canada. Thai country has become a top choice due to its favorable manufacturing environment. Here are several significant advantages of doing business in Mexico.
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1. Maquiladora Systems
Mexico has four key manufacturing sectors: automobiles, medical devices, electronics, and aeronautics. These industries have contributed to the country's economic expansion over the past decade in addition to these sectors. The maquiladora program has made Mexico a more attractive international market in recent decades. In 2006, as a way to make its manufacturing sector more competitive on a global scale, Mexico established the IMMEX program, which allows duty-free and tariff-free importation of goods used in industrial maquiladora processes. The program embraced cutting-edge technologies and manufacturing methods to make the country's manufacturing sector more modern and global. Because of international trade deals and the effort to globalize its manufacturing sector, Mexico has become one of the most sought-after manufacturing locations worldwide.
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2. A Young Workforce
Manufacturing firms in Mexico can benefit from a young, energetic workforce. Nearly four in 10 workers are under 25 years old. Foreign companies can take advantage of a workforce that can be trained and moulded.
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3. Inexpensive Labor Costs
Mexico's labor cost and cost of manufacturing are much more affordable and comparable to many of Asia's manufacturing hubs. Employee wages are often the most significant investment for any company, particularly those that manufacture. However, it is important to remember that labor costs are much lower in Mexico. Hourly wages for the typical ground-floor worker in Mexico are $2.80. That amount has remained virtually the same over the last decade. It is less costly than the United States manufacturing hourly wage of $30, but it is comparable to China's hourly wage of $17..
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4. Improvement Plan
It's less of a logistical and budgetary challenge to get finished items back to the U.S. or Canada because of Mexico's proximity. Sourcing in Mexico appealing to the marketers because of its highway and rail networks, it's cheaper and faster to ship goods over rail lines than via cargo ships, which border four American statesâCalifornia, Arizona, New Mexico, and Texas. Furthermore, these routes are situated throughout the country, making it easier to deliver items quickly.
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5. Strong Manufacturing And Business Environment
Mexico has a long manufacturing history, so a wide infrastructure network exists, including railway and highway systems that cover the entire country and extend into the United States. Foreign companies are investing more in the country's manufacturing sector, and the Mexican government is concentrating on bolstering infrastructure.
Challenges Of Doing Business In Mexico
Although Mexico provides a favorable manufacturing environment to foreigners, you might face some challenges, also. Here is a list of the disadvantages of doing business in Mexico.
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1. Need To Beware Of Business Connections
Even though it is easier to begin a company in Mexico now, it is still crucial to have the correct connections and understand the process. It has improved significantly this year (World Bank and International Finance Corporation, n.d.), but it is still tricky and difficult. There are many procedures for businesses unfamiliar with the Mexican business environment that may be difficult to negotiate.
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Getting Permits Can Be Slow
The Mexican government has attempted to make the country more business-friendly, particularly for international organizations, but setting up shop still might be a daunting procedure. Setting up a legal entity, establishing property, registering with the state, and operating the corporation, all of which are often complicated, must be accomplished when expanding to Mexico.
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3. Must Use Spanish
Because of its proximity to the United States, many Mexicans are familiar with American culture. In the workplace, foreign manufacturers will need to adapt to clear cultural differences and the fact that business is always conducted in Spanish, even though the working population has high English proficiency.
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4. Crime And Corruption
Mexican cartels hold an outsized impact on the Mexican government and police, utilizing their money, power, and threat of violence to keep them in line. While cartels usually avoid foreign businesses to prevent unwanted international attention, foreign businesses must be wary of the risk of violence and corruption. In 2020, Mexico was ranked No. 104 on the international corruption perception index. Because of this, companies must carefully consider their associations to keep their reputation intact.
Legal Implications Of Moving Business To Mexico
Mexican government facilitates foreigners to establish the business. Foreigners can own 100% of Mexican companies, but you should know some important legal implications of moving business to Mexico. Before you pack your bag, it is important to know about the legal framework of Mexico in advance.
- Mexicans follow the civil law tradition. Codified laws are implemented to make decisions, while penalties are pre-determined.
- For legal processes in Mexico, foreigners need to hire a local legal consultant. But many local Mexican attorneys do not have strong English skills.
- Insurance is important, and you should know about it before moving to Mexico. The Mexican government does not recognize the US and Canadian insurance documents. For insurance-related matters, you need to hire a service; that is a crucial step.
- Mexico is also working on labor laws that will make companies significantly employee-friendly. It also affects the state of labor.
- If you are in Mexico and want to start your business, you must declare before it.
Mexico is a great place for doing business, but it does have its pros and cons. We hope this blog has given you some insight into doing business in Mexico. Please contact us if you are looking forward to doing business in Mexico or with a Mexican company. Are you ready to take advantage of Mexico Favaorable's manufacturing environment? Contact our team of experts at SIXM and get on-ground support in Mexico.
