Business analysts have announced the end of Chinese Manufacturing. Many manufacturers have already been moving out of China andrelocated themselves to the New China; Mexico. This phenomenon is not only limited to manufacturing but also many other businesses. Then what is it that makes Mexico more beneficial to China and the rest of the developing countries?
Perfect Geographical Location for targeting the countries in American continent
In the pop culture, Mexico is a mandatory station you must stop by before targeting the United States or Latin American market. Well-known artists such as Ricky Martin, Christina Aguilera, Shakira would never had been recognized if they had not made their success in Mexico first, helping them to escalate their way right into the U.S. market.
But this equation works just the same with any other business. Mexico is the gate to obtain successful business in Latin America and North America at the same time. Located at the very North of all Latin American countries and the very South of North American countries, Mexico is often used as the main branch to manage other Latin American branches, and keep close contact with the headquarters (or other branches) in North America. With a SENTRI pass, crossing the border of Mexico to U.S. by foot or vehicle is as fast and easy as visiting a neighbor’s house. Being in the same time zone, having similar language and culture to the countries in America are also big advantages in having a branch, corporation or a factory in Mexico in order to have successful business in the American continent.
Faster, Easier, Cheaper and Safer Transporting.
It is with no doubt that transporting cargos to Latin American or North American countries is much beneficial in Mexico than in China. It will take less than one day to reach the U.S. and some other Latin American countries. But it is also much more beneficial shipping to Europe. While the shipping route from China to Europe is long, indirect and dangerous especially when passing the pirate-plagued Gulf of Aden and the Strait of Malacca as shown in the ture below,
The route from Mexico is direct without any obstacles in between the route. This is not only for Europe, but for any other continents, allowing your business to better keep with the customer’s demand from any part of the world.
Cheap Wage despite the talented work force
Today’s wages in Mexico are 40 percent higher than that of China’s, which is $3.50 an hour. Yet, China’s manufacturing wage has been rapidly rising from 60 cents in 2000 to $2.50 by 2012. Climbing 14 percent every year, it is expected that China’s wage will exceed Mexico’s by 25 percent in just 5 years from now. If productivity per hour is taken into account, China already exceeds Mexico’s wage.
Despite the low wage costs, Mexico graduates 130,000 engineers and technicians a year (higher percentage to U.S.A. when putting the population into account) and has good-quality, hard-working work force. Mexico also tops any industrialized nation in standard working hours which is 45 hours a week and about 2,317 a year. This is 519 hours more than what an American worker works a year, yet fifth of the payment.
Recognizing the economical growth with foreign companies doing business in Mexico, the Mexican government goes on developing programs and laws for foreign industries to set their companies and operate it with much more ease. According to DBIM findings, each of the 31 states and Mexico City improved at least one of the benchmarked areas (starting a business, dealing with construction permits, registering property and enforcing contracts) between 2012 and 2014, and continues to improve them. FTA, NAFTA, FTAA, EPA, ECA, TPP, IGA, IMMEX are a few of the many international business agreements and programs Mexico supports, among which FTA and IMMEX are the most important.
Free Trade Agreement (FTA)
Mexico has a total of 12 free trade agreements involving 44 countries. The 44 countries include Canada and the United States under the North American Free Trade Agreement (NAFTA) which no tariffs are imposed upon goods traded between these countries, Chile, Colombia, Costa Rica, Nicaragua, Peru, Guatemala, El Salvador, and Honduras inside the Western Hemisphere and Israel, Japan, and the European Union outside the Western Hemisphere. Mexico is also in middle of negotiation with other countries such as South Korea, Singapore, Panama and several others.
IMMEX allows companies to temporarily import goods without any taxes. Companies can also access the Program of Sectoral Promotion (PROSEC) to reduce or even eliminate import duties for goods and materials that are temporarily or definitively imported depending on the industry or services they provide.
- Avoid paying the General Import Tax in Mexico (IGI, Arancel-Ad-valorem) which varies by industry and goods/materials
- Avoid the payment of VAT which is typically 15% of the import value or 10% for cities that border the United States
- Avoid the payment of compensatory quotas which are duties applied to products protected by Mexico’s government (i.e. anti-dumping)
- Reduce Customs fee (DTA) from 8% to 1.76% of the value for machinery and a flat fixed fee of 179.00 pesos for goods
- Avoid payment of taxes in domestic purchases (which will be incorporated to the goods exported)
- Ability to create virtual pedimentos (also known as import/export declarations) between companies registered in the IMMEX program
- Ability to create consolidated Import pedimentos.
- Receive a VAT refund when a company has a positive balance in its declarations, typically within a term of 20 days according to the law.
- Ability to use Sectorial Benefits Program (PROSEC) which allows the import of machinery, equipment and spare parts by services companies
- Automatic inscription in the National Importers registry without performing the petition
However, although Mexico has many benefits to other countries in doing business, it is always tough to start living in a different lifestyle in a whole new country. Operating a business in a different environment and regulations will be even more, and the language barrier won’t make it any easier.
The foreign life
Take off (Visas)
The employees will need FM3 working visas, and the family of the employee, dependant visa. The process can take from 1 to 3 months. After arrival, employee and the family must register at INM within 30 days.
Basic things like finding certain type of ingredient used every day back home, finding a specialist doctor, getting a driver’s license, finding a place to live, finding child’s school, paying the bills… all these may become challenging at first.
Even after settling in, the language and the culture can always get in the way in totally fitting into the new environment. Attending parent meetings at child’s school, finding a job for spouse, locating places to do civic activities or spend leisure time, all those that will help a person to have a happy balanced life can become a burden. Sometimes it can become extremely frustrating and harm mental health.
Meeting Mexican business regulations
Setting up a company
Requirements differ depending on whether the company will be a corporation (domestic/foreign), incorporation, limited liability company, sole proprietorship or liaison office. The process can also differ from the originated country.
Compliances such as environmental, regulatory and tax should be met, but to learn all the latest regulations of a different country and to know up to what limit is permissible is not only extremely difficult, but also time consuming.
Managing the HR
Managing the human capital itself is very tough. But when working with people from different culture, that has different way of thinking, different habitual behavior and whom are accustomed to different way of managing, it can almost be overwhelming. And as Mexico has strong employment laws in order to protect the employees, HR manager must always be up to dated to Mexican Labor laws.
Luckily, there is. LUMI PEOPLE can help with all of the listed situations above. If the foreign life is of your concern, please check our Relocation Service. If setting up the company or meeting the compliances are of a concern, please contact us at firstname.lastname@example.org. If managing human resources worries you, please check our Outsourcing Service.
Want to know more about businesses in Mexico? Please check out our NOTICES Click here
Overall, any questions or doubts, please contact us at:
+52 01 800 000 LUMI(5864) or email@example.com