Mexico: A Very Promising Market
When it comes to doing business in Latin America, Brazil has long been the main target. But now many are aware that there is a more attractive destination nearby for their investment – Mexico.
As economic growth in many developed nations remain sluggish, investors and businessmen are turning to the emerging economies for business opportunities. Countries like China and Brazil are often the first choice but now, given their lagging economic growth and the stagnation in Europe, this is no longer the case. Mexico has been a beneficiary of this situation and was one of the standouts among emerging markets in 2012.
A growing economy
According to the World Bank, Mexico is the 13th largest economy in the world in nominal terms and the 11th in terms of purchasing power parity. This emerging economy, boasting considerable natural resources and a burgeoning middle class, provides considerable opportunities for business and is now even considered “the fifth BRIC”.
As a Bloomberg survey reveals, Mexico’s GDP rose 0.8 % from the third quarter of 2012, more than the 0.6% median estimate and up from a revised 0.4% growth in the previous quarter. The economy grew 3.2% from the same quarter the previous year, which was faster than expected.
Favorable government policy
The country’s positive economic development is partly attributed to the support of its government. The Mexican government has been implementing favorable policies over recent years that have facilitated Mexico’s continuous development into a more open, democratic and pluralistic society. When it comes to doing business in Latin America, its stable business environment makes Mexico an excellent choice.
In recent years, the Mexican government has carried out a series of reforms to the country’s financial and labor markets, which has added further stimulus to the country’s already rising economy that could even surpass Brazil’s to become the fastest-growing economy in the region.
Bordering to the north with the US gives Mexico’s market a distinct advantage when it comes to tapping the abundant business opportunities in the world’s largest market. The geographic advantages Mexico enjoys also allow it to have a high volume of cross-border traffic with neighboring countries such as Canada at lower shipping costs and with higher speed and efficiency.
Besides having a favorable geographic proximity, the fact that the Mexican economy is part of the North American Free Trade Agreement (NAFTA)—a trilateral trade agreement in the region formed by Mexico, the US and Canada—further facilitates Mexico’s ties with the two developed countries. This, together with its Free Trade Agreement with more than 40 countries around the world, means that Mexico is set to become one of the best-performing emerging markets in the near future.
Low labor costs
While the economic growth expectations of other emerging markets are cooling, Mexico continues to thrive. One of the key reasons is the country’s low labor costs. China used to be known for low labor costs that attracted many businesses to set up factories in the nation. But with labor costs in China on an inexorable upward trend, Mexico now holds an appealing position as its labor costs are the fifth lowest among 28 low-wage countries and are at just a quarter of those in the U.S.
Other trends in Mexico’s labor market are also very positive, given the government’s labor reforms and the growing population of university graduates, which will ensure an adequate supply of talents to support future economic development.
Large consumer market
Also driving Mexico’s ascent is a rapidly growing consumer population generating a surge in consumption demand. Since the locals’ incomes are increasing, consumer purchasing power is growing as well. The large local market and its expected growth create a solid foundation for manufacturing, and imports and exports. Mexican consumers’ preference for foreign products also increases the export potential of the market.
Financial centre in Mexico.
What to consider?
Despite the improving prospects for the Mexican market, it would be wise to do some preparation and gain a better understanding of the country’s current status and systems before taking further action. Here are some major considerations:
Bribery and corruption
The Mexican government has been actively eliminating corruption in the country for years. However, it is still a common problem encountered when doing business in Mexico. Traders are advised to obtain more information from local businessmen and get advice from consultants on the reality of bribery and corruption in the country in order to see how the problem can be dealt with. It is also important for firms to have a clear policy on this matter.
The country’s legislation includes a variety of laws related to taxes. And in addition to specific tax laws, there are also some basic laws that refer to general tax administration.
Mexico’s main taxes are the Income Tax, the Value Added Tax, and the Single Rate Business Tax, which is a complementary tax calculated on a cash-flow basis. The three taxes and all withholding taxes are paid monthly by online transfer from the taxpayer’s bank accounts to government accounts.
Labor law in Mexico is complicated and employee-oriented. The law gives workers the right to organize labor unions and to strike. Additional benefits, including minimum wage, maximum work hours, severance payments, housing, etc, are added under different regulations. Compliance with all the regulations is crucial in order to avoid labor disputes.
Besides the labor rights endowed by the labor law, the country’s constitution stipulates that all companies are obligated to share their yearly profit with their employees, and at present this amounts to 10% of the company’s annual net profit. Start-ups during the first year of operation are exempt from the profit-sharing payment.
With Mexico the most populous Spanish-speaking country in the world, Spanish is the official language of the country, while English is also understood by many members of the business community in the capital and larger cities. It is advised that firms prepare all printed documents in both English and Spanish.
To sum up, preparation is always necessary before entering any new market. As economists anticipate the stability of Mexico’s economic progress to continue in 2013, Mexico’s market is expected to see solid and sustained growth in the foreseeable future. Are you ready to secure your foothold in this promising market?