Global businesses, particularly American firms, are becoming a subject of Trump Administration political rhetoric. From pledges that the nation will charge for a ceiling all along the southern U.S. border to import duties threats or punitive measures against such financing operational activities there, the pros and cons of doing business in Mexico would seem as if the average company is not important to consider.
Americans were not the only nation that businesses consider doing any research in Mexico. It is a flourishing, large country that provides more reliability and safety than most other similarly stated nations. For this reason, it is important to consider for a company of any scale the advantages and disadvantages of being involved in the Mexican economy.
|Benefits of doing business in Mexico||Drawbacks of doing business in Mexico|
|It is an emerging economy.||Complex the process to start a business in Mexico.|
|Access to more capital potential.||Culture shock for some agencies.|
|The economy remained stable over the years.||Some regulations to navigate.|
|Robust word-of-mouth marketing||Registering property can be challenging|
Advantages of Doing Business in Mexico
- Exchange Rate in Mexico is Advantageous
The exchange rate for $1 as of August 12, 2019, equals 19.57 Mexican pesos. This means many foreign companies are much cheaper creating new ways to meet Mexico’s customers. The currency rate has remained fairly constant since 2018, ensuring you have a consistent reduction in the cost of building requirements, purchase of assets, and spending on property investment.
Unless you receive the profits procured in Mexico for capital investment, your buying power stays unchanged, but instead, there will always be a chance to funnel more capital into the nation to continue production as required.
- Skilled Workforce
Once a company starts doing business in Mexico, they can find that the workforce is extremely qualified in a wide range of industries in that region. There are vast numbers of employees available in many STEM sectors, and corporations do not care about the legal status of the workers they recruit to the same degree because they would in the United States.
Regulations also give significant, allowing specifications likely to cost far less than in other countries. Here as well, environmental and safety rules are much more comfortable, contributing to a significantly lower expense as a whole, too spending plan per year.
- Labor Rates are Highly Competitive
Mexico’s labor costs are comparable to what businesses find when setting up operations in China. The average wage is just 20 percent higher than what Chinese companies pay, and the benefit of becoming active in The North American economy is important. Even when one exempts from the US the threat of tariff barriers by simply eliminating that industry, the advantages of having direct exposure to Canada can be very profitable for a business of nearly any size.
In Mexico, the transport costs of goods sold in the export of the industry are much lower than in China.
- Open Economy
Mexico now has 17 free-trade agreements with a total of 49 various countries as per data posted by the Entrada Group. Singapore alone is outperforming the open economy with its 23 actively operating agreements.
This means you’re going to have access to Asia and with a presence in Mexico, Europe is much more successful than a business would have at home.
Disadvantages of Doing Business in Mexico
- Implementing an agreement is a Lengthy & Laborious Operation
Once you begin conducting business in Mexico it takes more than 400 days to execute a deal. Because of such a drawback, the business would need to follow 38 different protocols to ensure a positive outcome. Even with the favorable exchange rates, the nature of this system could be enough to discourage some firms from seeking investment in this region.
The only advantage in this particular case is that the debt recovery phase is much easier than it is in the Caribbean or South America, requiring less than 2 years to complete, rather than the 3 years that happen on average.
- Small Companies Lack of Money
Mexico’s shortage of multinational small and medium-sized businesses is difficult for a number of reasons. It was the same limitation that many Mexican women face while attempting to set up a business in Canada or the United States. Due to the cost associated, there is now an increase in complexity when going overseas as especially in comparison with a bigger firm.
Linguistic and cultural distinctions integrate with the scarcity of funds to create a sufficiently high degree of risk to consider jettisoning a chance. And something as slight as fear of change can back away certain companies from their maximum potential.
- Importing and Exporting Goods are Expensive
Although there are significant benefits to doing business in Mexico, businesses need to evaluate the rates of exports and imports they would need to be effective. The Mexican market is considerably higher when you start comparing the container costs here to those of the Caribbean or South America.
The average import cost per container is $1,450 whereas the average export charge is $1,780. You could make it profitable to do business elsewhere and then export products to the Mexican economy when you throw in the additional benefits that certain small islands offer to provide the employment options.
- Corruption Issues Exist in the Economy
In 2013 Mexico ranked 103 out of 175 countries for the rate of corruption in its government sector. World Bank released its annual Corruption Perception Index and that year, the nation scored 35 out of 100. Higher scores reflect less corruption while a score of 0 would suggest the very worst potential fraud.
Its rating dropped to 28 in 2018, placing them 138 out of 180 countries. The United States scored a 71 in contrast, and Canada placed 9th overall on the list with a score of 81. Denmark had the top marks on an 88, followed at 87 by New Zealand.
Three particular instances rely heavily on the benefits and drawbacks of doing business in Mexico: what you strive to achieve, the wealth you have, and what your ultimate goals are with this effort. Because of it’s lower prices and increased exposure to North America, the manufacturers turn their focus to this nation from around the world.
If you are able to effectively negotiate the linguistic, cultural, and bureaucratic gaps then this choice can be a very gratifying experience.
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