How To Overcome The Challenges Of Doing Business In Mexico

You legally incorporate a company in Mexico. You feel you have selected the right personnel. You set up the corporate ERP, probably even in Spanish. You train your employees in Mexico, offer them better than average compensation. And you still don’t receive the subsidiary’s information as you requested. Or in the timeline requested. So you compromise and learn to accept things as they are.

 

This shouldn’t be your case. Managing a company and doing business in Mexico should be easier than what you’re currently going through. Physical distance is a burden enough and having to deal with other local issues makes things worse. Why does this happen?

 

1) Mexican working culture differs strongly from American and European standards

Mexican corporate structures are vertical in nature, with supervising levels overviewing their subordinates. We have layers of managers and supervisors (normally the more senior employees in the operation, not necessarily the most capable) who are supposed to keep things running smoothly by making sure everybody does his/her work.

2) Lack of accountability

One of the reasons behind these vertical structures is the lack of accountability. (This word doesn’t even have a Spanish translation). Seldom do employees enjoy or suffer consequences for their performance. Mexican companies often pay bonuses on attendance or seniority, on a general basis, and not after conducting individual assessments on the employees’ performance. The reasoning behind this bonus structure is that it’s cheaper to pay them to employees just for fulfilling their obligations instead of having to fire them and spend more on recruitment.

3) Mexican Federal Labor Law

To make things worse, the Mexican Constitution and the Labor Law state that companies must share 10% of its annual profits among employees (PTU in Spanish). This distribution is based on attendance and salary, so employees will get this “bonus” regardless of their performance. There is no motivation to exceed expectations. On top of that, foreign employers reason that if they have to pay a mandatory bonus, there is no justification to pay an additional one based on corporate policy.

 

Another reason for this lack of accountability is that companies terminate employees as a last resort. Mexican labor law is strongly designed towards protecting the employees so letting them go without severance because they missed a deadline or made a mistake would be hard to enforce, resulting in expensive severance payments. Finding trustworthy employees felt hard enough so there’s more tolerance for mistakes and miscommunication.

 

Benefits of Regular Financial Audits

One tool we have found to influence the subsidiary’s management structure and culture is a regular audit by independent professionals.

 

1) Strengthen compliance

 

An external audit on the subsidiary’s financial statements, besides adding confidence to the financial information reported, puts everybody in compliance-mode, especially when ordered by corporate headquarters. Auditors in Mexico are well regarded for being professional, remaining independent through the engagement and reporting accurately to the holding company.

2) Accurate and timely financial information

Besides adding quality filters to the financial information, internal reports from the subsidiary will be reviewed and will be sent on time, because now a third party is involved in meeting deadlines. These reports have to match the local legal information sent to the Mexican tax authorities, which is also reviewed during the external audit, so foreign holding companies can trust they won’t have harmful tax issues in Mexico or that they will be timely informed to be solved.

3) Stronger internal controls

When this process is engaged, Mexican employees start seeing the auditor not as an outsider overviewing them but rather as an advisor on how things should be done and reported to higher levels. This builds trust between management and the external auditor because now both have to achieve results. They start sharing their respective responsibilities.

 

We have many years of experience helping Mexican subsidiaries report to their international holding companies. We’ll be glad to explore with you if this service can help you avoid common challenges while doing business in Mexico and solve actual problems with your Mexican operation.

 

Feel free to request any information you may need to consider this solution.

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