Mexico is one of the most competitive countries for investments at an international level thanks to its political and macroeconomic stability, size, and strength of its internal market, and unfluctuating inflation. However, doing business can be a time-absorbing task, which is why having local knowledge as part of the venture is crucial.
To make itself more attractive to investors, the Mexican government has made improvements to its infrastructure and fostered competition in sectors such as transportation, energy and telecommunications. As a result, it now stands as the 15th largest economy in the world and the 11th in terms of purchasing power.
One of the biggest changes for Mexico has been its trade policies. Mexico has free trade agreements with 46 countries and has become a global manufacturing base, with strong links to consumer economies in North and South of America. The country offers a strategic location and proximity to the main consumption centres of the world, allowing companies to respond quickly to changes in demand.
There are still many hurdles to overcome when doing business in Mexico. Having local knowledge of the investment environment and good information on the legal, accounting and taxation framework can therefore be an asset for any overseas venture.
Starting a Business
Starting a business in Mexico was once a complex minefield, but thanks to tough government action the procedure today is much more manageable. Mexico ranks 49 overall in the World Bank's Doing Business evaluation, and 90 for ease of starting a business. Still, there are several procedures which can be tricky to navigate for firms unfamiliar with the environment, particularly registration with the Mexican Social Security Institute (IMSS).
Dealing with Construction Permits
It takes around 76 days to deal with construction permits, which is by far more efficient than the Latin America and Caribbean average. Water and sewerage connection takes the most time to complete and obtaining a single zoning certificate stating specific land use and feasibility can be a complex task.
According to the World Bank Mexico ranks 92 in the world for ease of getting electricity, underlining the complex nature of the procedure. It is a task laden with bureaucracy, and firms must submit applications, obtain certificates and inspections from the Comisión Federal de Electricidad (CFE), before a contractor can carry out the works.
Registering property is a long and arduous task, it can take almost double the time compared to the norm for OECD countries (22 days average). Dealing with the Public Registry of Property of the Federal District can be particularly time consuming, and obtaining a certificate of good standing with the water service and the Zoning Certificate of the property can also take some time.
Mexico's well developed financial sector puts it in good stead in terms of getting credit, although it is still relatively difficult compared to most developed nations in the world.
Investor protection is still a contentious issue in Mexico, although the North American Free Trade Agreement (NAFTA) has gone a long way in rectifying some of the past issues that existed in the country.
Paying taxes is a laborious process in Mexico, taking some more than 240 hours of business time per year, even though there are only six payments to be made. In TMF Group's last Financial Complexity Index, - which ranked 94 countries based on their complexity for accounting and tax compliance - Mexico ranked 15th overall and is 1st for complexity in 'Bookkeeping' (84%). Tax legislation in Mexico is unique in the sense that the basic accepted documentation supporting transactions is the invoice issued by the supplier. Although the country is in the process of adopting IFRS, it is important that every foreign company coming into the country analyses the regulatory and reporting differences, particularly for different industries.
Trading Across Borders
There is a substantial cost associated with trading across borders, far higher than the average in South America and the Caribbean. The cost of importing is around $450 per container and exporting costs $400. It also takes quite a long time to move containers, 12 days when importing and exporting on average.
Enforcing Contracts and Resolving Insolvency
It takes 350 days to enforce a contract, and there are 38 procedures involved in doing so, making it a complex task. Resolving insolvency, on the other hand, is more streamlined, taking only 1.8 years compared to 2.9 in the rest of South America and the Caribbean.
In Mexico's typical business culture meetings start off slowly, and matters of importance - such as deal making - are generally not discussed until the end of a session. There is a large gap between the executive level and the various levels of the rest of the company, and decisions will usually be made by one person, rather than a board of directors.
We have the local knowledge to help you navigate these minefields. Whether you want to set up in Mexico or just want to streamline your Mexican operations, talk to us.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.