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Operational risks for your business in Mexico




When operating a subsidiary in Mexico, foreign businessmen, especially those from developed countries, should expect a different level of efficiency and performance vis-à-vis their operation at home.

For many things Mexico can be considered a modern country for doing business but for many others, we still trail other more developed countries. Here, we list a few examples of situations that foreign investors must be aware of to avoid unpleasant surprises.

CORRUPTION

Unfortunately, corruption is very common in Mexico. It is probably one of the biggest obstacles towards development. For decades, Mexican citizens and government employees have learned and got used to do business in a corrupt environment. Having to bribe someone just to obtain an operation license, or a tax credit in return, is quite common. In our accounting firm, we obviously do not participate or tolerate any corrupt act, but we learn from our clients that even if they do not initiate any illegal offers, the “system” makes them participate. For example, getting a construction permit without paying a local official his/her share, can delay a project for months. And initiating a process against those officers will again be vulnerable to corruption from the justice system. It could be a never-ending frustrating process. So, our advice: be legal, stay clean, be brave and patient and with some luck, your business processes won’t be very affected, and we will move closer to a corruption free environment one day.

INSECURITY

With corruption, this is probably the most important concern for Mexicans. Insecurity and impunity affect individuals and businesses alike. When investing in Mexico, you should consider in your budget an important expense for security in your offices, plant, warehouse, etc. If shipping valuable goods, many companies engage pilot cars to protect the 40-ton rigs. It is also common for companies to send more than one trailer so that both vehicles can watch out each other. Insurance and freight are more expensive for the same reasons. Shipping times must be through selected roads and during the day. Running a business can be tough in itself. Insecurity makes this even tougher.

IMPORTING ACTIVITIES ARE SLOWER

It is common for American or European companies to incorporate a Mexican subsidiary to distribute their products. Hence, the Mexican entity will become an importer of goods. To do so, Mexican companies must obtain an importer’s permit. Its imports must then be handled by an authorized customs agent, who is an independent individual (many times with very big agencies) that will oversee that the imported goods are correctly identified, valued and reported and, if applicable, will determine that the proper taxes and duties are paid. These steps take time, which is often considerably more than in other countries. In this scenario, employees in charge of purchase and logistics, must allow more time for their operations. They often have to make bigger or more frequent orders, with the funds invested in the inventory, the increased costs of insurance, freight, warehousing, among other.

LABOR LAW

Labor law in Mexico comes from a time after the revolution where the government felt it owed the Mexican worker many decades of abuse and neglect. Hence, Mexican labor law favors employees considerably. While this could be desirable, it makes difficult and expensive for employers to hire and pay employees. For example, workers are entitled to a 10% profit sharing from the company, just for being going to work! Severance payments are expensive and often unavoidable. The law is not very flexible when needing to hire more employees for busy season, and so on. All these situations have made Mexican employers more creative in their hiring schemes.

These are some of the operational risks of doing business in Mexico. We can help your company manage these risks, allowing you to concentrate on making the business grow. Feel free to contact us to comment on your needs.