Doing Business in Mexico offers investors opportunities that rivals all other emerging markets. It is currently a popular trend to be doing business in Mexico. Its reputation has gone from the land of violence and corruption to the land of opportunity. Investors are attracted to Mexico since their government made infrastructure improvements and created competition in the corporate sectors like transportation, telecommunications, and energy. Mexico now stands as the 13th largest world economy and the 11th when it comes to their purchasing power.
With all of these improvements doing business in Mexico has become a more attractive option for business owners wanting to expand. Here are the risks to watch for if you are planning on doing business in Mexico.
10 Major Disadvantages of Doing Business in Mexico
1. Starting a Business Is Tough
It was once a very complex procedure if you wanted to start doing business in Mexico. Tough government action helped to make the procedure much more manageable today. There are still many procedures that can be hard to navigate for anyone unfamiliar with this environment, specifically the registration with the Mexican Social Security Institute. This is just one of the Mexico business risks that you must understand completely before you can be successful there.
2. Having to Deal with Construction Permits
It will take you 69 days and require ten procedures dealing with construction permits to prepare the location for your business. This is far more efficient when compared to other Latin American waiting periods. The water and the sewerage connections take almost a month to complete. Obtaining one zoning certificate that states specific land use can end up being a complex task. This is one of the disadvantages of moving business to Mexico. You will have plenty of time spent waiting for things that you have no control over.
3. Getting Electricity Takes Enormous Time
Getting your business connected to electricity is a complex procedure that is filled with bureaucracy. Your firm must submit the proper applications, then obtain certificates, and pass inspections before a contractor carries out any work. This takes a lot of time that you could spend on other things that need to be done. However, many of the other things that you need to be done will require you to have electricity.
4. Registering Property Is a Slow Process
It takes around 74 days to register a property making it a long an arduous task. It can be extremely time-consuming when you deal with the Public Registry of Property. Obtaining a certificate with the water service and zoning certificate for the property will also end up taking some time. So much time is spent waiting on things that it will be easy to lose sight of what you are doing completely. Keep your head in it and work through the red tape and it’s possible that your business will succeed in the future.
5. Getting Credit Is Hard
Mexico has a well developed financial sector will attempt to help you to get credit. It is still very difficult when compared to the developed nations. If you don’t have the funding to start the business on your own, you should probably not rely on getting credit down in Mexico. Although there is a chance that you could get funding, there is much more of a chance that you will be denied.
6. Protecting Investors, a Contentious Issue
It is a contentious issue in Mexico when dealing with investor protection. The North American Free Trade Agreement went a long way to rectifying issues of the past that were prevalent in the country. Investors are protected better than they were and are more willing and able to fund your business than the Mexican government is. Make some connections with some solid investors if you hope to get your business off the ground.
7. Paying Taxes Is Time-Consuming
It is a cumbersome process to pay taxes in Mexico. They take up too much of your businesses time for only six payments. There is a corporate income tax at 30% that takes huge chunks of time to complete and costs you huge amount. VAT filing and contributions to social security will take a long time to process completely.
8. Trading Across the Borders Is Costly
There can be a high cost when it comes to importing or exporting goods if you are not working with experienced professionals.
9. Enforcing Contracts and Resolving Insolvency Takes Years
Enforcing a contract will take 415 days with 38 procedures needed to do so. That makes for a complex task. Resolving insolvency is a more streamlined approach taking a little less than two years In the rest of South America you can plan on waiting longer than three.
10. Many Cultural Differences
Mexico has a business culture that is much different than what’s expected in the U.S.. Meetings start slowly, and the things that matter the most are not discussed until the session has almost ended. A large gap can be found that separates the executive level and the other lower levels of the company. Decisions that affect everyone will often be made by a single person and not a group. These are only a couple of the cultural differences between US and Mexico in business.
These are ten of the most challenging risks associated with starting a business in Mexico. It has become a more pleasant place for investors than in the past, and many businesses have been flocking to the current opportunities provided. Make sure you are aware of these risks and are prepared for the challenges that they bring.