What Are The Risks Of Doing Business In Mexico?

October 06, 2021

Over the last few years, the Mexican economy has grown until it is now the 15th largest in the world. A large element of this success has come from the implementation of trade deals with a number of nations—primarily, Canada and the United States. An increasing number of businesses are now realizing the benefits of offshoring. 

In other words, they are outsourcing aspects of their business to Mexico, allowing them to take full advantage of reduced manufacturing costs and access to quality, skilled labor at lower rates than those offered in either Canada or the USA, and then importing the merchandise from Mexico.

While there are undoubtedly a number of advantages to working and doing business south of the border, it is worth noting that there can also be downsides. Being aware of these before you make any decisions can help to ensure that you make the best move for your business. 

Without further ado, it’s time to consider the risks of doing business in Mexico.

Be Cautious With Contacts

Staying sharp and shrewd is common sense in any country, but dealing with the wrong contact in Mexico could have legal implications for your business. The government will view your organization in a negative light if you are found to have connections with criminals or dangerous characters—for example, if your supplier is found to have connections to a gang or possesses a criminal record. 

To protect your professional reputation, you need to be careful who you work with.

High Crime Levels

Another major risk is the high level of crime still present in many areas of Mexico—particularly Juarez and other border cities. Drug dealers and criminals retain a sinister presence in several border areas. Some places are more dangerous than others, and many factories will have strong security measures in place. 

However, the risks remain. Keeping your wits about you is crucial, not only to preserve your business but also to potentially save your life.

Slower Timelines

As with any other country, there are a lot of forms, permits, and pieces of paperwork which must be completed and processed before you can move ahead with any business deals or opportunities. 

The government departments of Mexico have a reputation for being notoriously slow when it comes to processing and granting permits, and this can be an issue if you need to move quickly, or have time-sensitive investments.

Tricky Government Policies

In a recent analysis by the World Bank, Mexico ranked relatively low down on the scale with regards to the ease of doing business in the country. The research considered a range of factors, including starting a business, dealing with permits, accessing electrical supplies, registering property, paying business taxes, enforcing contracts, and obtaining credit, amongst other factors. 

The highest possible number of points is 100, indicating the countries with the easiest government policies to deal with; Mexico scored a 72. While still ahead of India with 67, this is still far behind the United States’ score of 83. The point is that you may encounter some culture shock trying to do business in Mexico.

One of the key issues is around labor. Labor laws in Mexico favor employees, not employers, and this can be tricky to work with. As an example, while employees may simply leave your business, terminating an employee is a long, arduous, and often expensive process. 

Taxes and payroll can also be difficult to navigate, as Mexico uses a unique accounting system which can be tricky. Investing in an experienced consultant should always be considered an essential expense.

Learn The Language

One of the largest practical issues with moving your business to Mexico is the prevalence of Spanish. This is the official language of the nation and is considered the language of business. Any tax documents or official papers will need to be translated into Spanish. 

In addition, you will need a good working knowledge of the language—not only to be taken seriously, but to avoid the risk of being ripped off or, as discussed earlier, unknowingly entering into business with a potentially harmful contact.

Uncertain Future

One of the largest concerns about doing business in Mexico comes from uncertainty over the future, especially with regard to ongoing discussions and conversations about the free trade agreements with the United States. 

A large portion of the Mexican economy has come from the benefits of these deals, and any alterations or adaptations could have serious impacts on the investment opportunities and potential profitability of doing business in Mexico. 

This lack of certainty is an issue and risks becoming a self-fulfilling prophecy. The more businesses who hold off investing due to doubts, the larger the risk to the economy.

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