Why You Should Do Business in Mexico
We found this great article from American Express about why now is the time to be expanding your business into Mexico. We will be conducting a 1-Day CEO Bootcamp on June 4, 2015 in San Diego and we’ll be talking about this exact subject in much more detail.
By Katie Morell
Entrepreneurs with a touch of wanderlust are looking to Mexico as a viable business location, and for smart reasons.
Elizabeth Helsley fell in love with Mexico while on a yearlong college study abroad trip to Mexico City. After graduating in 2001, she went back home and worked in San Diego until a U.S.-based company relocated her back to Mexico City. She was thrilled with the opportunity, so much so that in 2010 she left the company and started her international consulting business Global Luxe in Guadalajara.
“I get up and am excited to go to work every day,” she beams.
Entrepreneurs like Helsley with a touch of wanderlust are looking to Mexico as a viable business location, and for smart reasons.
First: while the rest of the world reels from financial meltdown, Mexico’s economy is going strong.
“After the crisis of 2008, Mexico proved to be very stable,” says Mauricio Monroy, president of the U.S.-Mexico Chamber of Commerce California Regional Chapter. “We had a similar situation in the late ’90s and since then, our banks have gotten healthy and diversified, so we are nicely insulated from what the rest of the world is going through.”
Second: the exchange rate. At press time, 1 USD was equivalent to around 12 Mexican pesos. This is good for Mexico, as the peso has historically been worth much less. The result: “It is cheaper for Mexicans to buy U.S. products and services,” he says.
Third: the lack of culture shock on the part of Mexican consumers. American products, advertising and services are commonplace in Mexico, making it that much easier for U.S.-born entrepreneurs to launch a business inside the country.
Fourth: U.S. companies can establish a presence in Mexico and stay owned and managed by U.S. nationals. “In many other countries, you have to hire a local employee,” Monroy says. “Here, it’s not hard to start a business—you need $3,000 pesos for an LLC and $50,000 pesos to form a corporation.”
But before you book a flight heading south, it’s also important to consider some of the differences that might accompany setting up your business in Mexico.
What you need to start a business in Mexico
Monroy suggests doing a few things before making the move, including a marketing survey. “You need to make sure your product or service will be well received in Mexico,” he says. “I recommend talking to chamber of commerces, business organizations and economic development organizations. You can pay them to conduct surveys for you.”
Then it is off to do the paperwork of setting up a business. Mexico has a variety of business launch requirements—from licensing to permitting fees—and it’s important to make sure you have everything covered. Not sure where to look? Try the local economic development corporation or hire a notario publico.
Helsley chose to do the latter. “A notary in Mexico is not the same as a notary in the U.S.,” she says. “Here, it is a high-level, special position. Every notary is a lawyer.” Helsley found her notario publico through a recommendation.
Don’t have established business contacts in Mexico? Try contacting a few English-speaking law firms and interviewing candidates, she suggests.
According to Monroy, the process of registration to business launch can usually take a couple weeks. “It might take longer if they need special licenses,” he says.
This is great news, says Helsley. “It used to take a couple months to register as a corporation, but now you can do it online,” she says. “The government is actively working to streamline the process and it varies state by state.”
Best types of businesses to start
U.S. entrepreneurs can have great success in the manufacturing industry when coming to Mexico, according to Helsley. “I’ve seen a lot of U.S.-based businesses that currently manufacture in China start to look at Mexico,” she says. “China is getting more expensive. When you can move back to North America, save money, hire highly skilled workers and work in the same time zone, it is a win for everyone. I’m seeing in a big shift in that area.”
E-commerce is another growth industry worth pursuing, Helsley says.
In addition, U.S. business trends have a way of moving down to Mexico a few months or years after they are hot stateside. “If there is a business model that is successful back home, consider it as something to start in Mexico,” she says. “Here, you may be on the cutting edge.”
While Helsley loves her life in Guadalajara, she does notice a few major cultural differences between Mexico and the U.S., starting with the concept of time.
“In the U.S., there is a real sense of urgency about everything,” Helsley says. “If you don’t e-mail someone back within a few hours or even minutes, they start freaking out. Here in Mexico, people may wait a few weeks to write you back. It doesn’t mean that they don’t like your product or service; it’s just the way they do things here.”
Helsley recommends entrepreneurs always pad time before and after business meetings. Set an appointment for 3 p.m. and you may be waiting in an office lobby until 4 p.m. or later, she says. “Planning back-to-back meetings is not a good idea,” she says.
Another difference: the word “no” doesn’t seem to be in a Mexican consumer’s vocabulary. “They will never tell you ‘no’ directly,” she says. “You may interact with someone to sell your product, think it went great, they say they love it, and then you don’t hear anything. It can be frustrating.”
Dodge this frustration by meeting face-to-face with customers and vendors, Helsley recommends. “That way, you can read their body language,” she says. “You can usually see it in their faces if things aren’t going well.”
Mexican labor laws are not favorable to employers. According to Monroy, the government is extremely protective of employees and it can be difficult to fire anyone. “You have to pay three-months salary and a seniority premium based on number of years worked unless there is a clear reason that the employee has done something illegal,” he says. “You have 30 days to fire someone without having to pay anyone this, but on day 31, you have to pay.”
For this reason, Helsley uses only independent contractors and therefore avoids any regulatory drama. “A few of my friends have hired people and then had to fire them in less than a month and it’s turned into a mess,” she says. “People have arrangements with local judges, so everyone gets a cut if they are fired. Contracts are incredibly common because of the strict labor laws. A lot of big companies don’t even have full-time employees; they have their staff listed as people working on commission. There are loopholes in the law that you can work with.”
Dealing with crime and corruption
It’s no secret that Mexico has a problem with crime; headlines often report on the drug war happening within its borders. As negative as the news is, Monroy doesn’t shy away from talking about it.
“It’s a reality, but the reality is that it is very localized to certain communities,” he says. “Only 3 percent of Mexican towns have severe crime. It is not everywhere.”
Living in Mexico, Helsley says she feels safe. “If you are not selling drugs or involved in organized crime, you really don’t have to worry more than you would stepping outside any other day of your life,” she says. “I compare it to a gang fight in Los Angeles; just imagine if people stopped traveling to California because of it. The crime is really in pockets of Mexico, and it is gang-on-gang violence.”
Corruption—among politicians, police officers and businesspeople—is also widely reported. But what is the reality?
Monroy says the practice of “paying people off” is also a reality, but says it is localized to smaller towns and easy to fend off. “If you don’t play by the rules, they won’t touch you,” he says. “But if you give them $1, you will become a customer. Yes, there are places where corruption exists, but those places are exceptions.”