The allure of Mexico's burgeoning e-commerce market is undeniable. With a rapidly growing middle class and increasing digital penetration, Mexico presents an exciting opportunity for foreign companies in the retail sector. But how can you successfully launch your e-commerce operations in this dynamic landscape? This guide will walk you through everything you need to know to establish and grow your e-commerce business in Mexico.
Doing Business in Mexico
Before diving into Mexico’s e-commerce sector, it's crucial to understand the fundamentals of doing business in the country. From navigating local regulations to adapting to consumer behaviors, having a solid foundation is essential for success. Mexico's strategic location, large consumer base, and established logistics networks make it an attractive option for online businesses, but careful planning and market research are needed to thrive.
Understanding the Legal Framework for Doing Business in Mexico
Navigating the legal framework is a crucial step for any business looking to succeed in Mexico’s e-commerce market. The country’s regulations are designed to protect both businesses and consumers, ensuring fair practices and compliance with tax, labor, and consumer protection laws. For e-commerce ventures, understanding these regulations is particularly important as they differ from traditional brick-and-mortar businesses in several ways.
Navigating Mexico's Legal and Tax Requirements
Launching an e-commerce business in Mexico also means complying with local laws and regulations. From obtaining the necessary business permits to understanding tax obligations, ensuring legal compliance is a critical step in setting up a successful online venture. Staying up to date with Mexico’s e-commerce regulations will help businesses avoid legal complications and build a strong foundation for long-term growth.
A Glimpse into Mexico's E-Commerce Landscape
For those interested in doing business in Mexico, e-commerce could be a the best opportunity to evaluate the market.
Unleashing Potential in a Growing Market
Mexico's e-commerce market has been expanding at an impressive rate. The global pandemic drove an unprecedented growth in online sales in Mexico, and it never really slowed down. In fact, Mexico is one of the fastest growing e-commerce countries in the world. In 2023, over 23% of all sales with a debit or credit were made online, to the tune of about $45 billion dollars, and an average ticket of $10.61 dollars per transaction (CONDUSEF). This includes all types of e-commerce purchases made by debit or credit in Mexico, including tax. Below are B2C e-commerce sales statistics.
The global e-commerce market is showing signs of stability after years of uncertainty, with a projected increase of 10% for 2024 and 8.8% for 2025. Mexico is positioned as the fastest-growing retail e-commerce country in the world (AMVO with data from eMarketer).
Opportunities for Foreign Retailers
For foreign retailers, Mexico offers a fertile ground to grow. The country’s young population, coupled with an affinity for digital shopping, makes it an attractive market. Additionally, Mexico's geographic proximity to the United States and its inclusion in trade agreements like the USMCA (United States-Mexico-Canada Agreement) further enhance its appeal. By establishing a foothold in Mexico, foreign companies can tap into a large and eager consumer base.
Central Mexico is home to about 80% of the e-commerce market potential, and approximately 20% of the country's population reside in the zone. The e-commerce sector has exploded in Mexico in recent years. Between Q1 2020 and Q1 2023, Mercado Libre and Amazon absorbed almost 9.7 million square feet of warehouse and fulfillment centers nationwide.
The largest and most dynamic of the 9 logistics corridors that make up the zone, the CTT Logistics Corridor, has seen a 50% increase in the number of square feet of warehouse and distribution space over the last 5 years. The pipeline of construction at the close of Q2 2023 registered 5.1 million square feed of planned projects, with about 91% of the activity registered as "big box stores" warehousing activity known as "last mile delivery" operations direct to consumers.
Understanding the Mexican Consumer
During 2023, almost 66 million people purchased a product or service using a digital channel in Mexico (AMVO with data from INEGI). That is 1.8 times the volume of digital buyers just 6 years ago.
Digital Penetration and Online Shopping Habits
According to Statista, there were 107.3 million internet users in Mexico at the start of 2024, when internet penetration stood at 83.2 percent. A total of 125.4 million cellular mobile connections were active in Mexico in early 2024, with this figure equivalent to 97.3 percent of the total population.
Source: www.datareportal.com *18 Years+
Mexico was home to 90.20 million social media users in January 2024, equivalent to 70% of the total population. Social media plays a significant role in influencing purchasing decisions, and mobile commerce is becoming increasingly popular. Mexicans are not only browsing but also buying online, making it crucial for retailers to optimize their platforms for mobile users. In fact, 98% of digital shoppers report using a smartphone for purchases.
Key Demographics and Consumer Segments
Mexico's e-commerce market is characterized by a diverse consumer base. GenZ (31%) and Millennials (27%) are primary drivers of online shopping, seeking convenience and value. The average digital shopper is 38.6 years old in Mexico (AMVO survey). Additionally, the emerging middle class with disposable income is also contributing to the growth of e-commerce.
Popular Product Categories
When it comes to popular product categories, electronics, fashion, beauty products, and groceries top the list. These categories reflect the Mexican consumer's preference for both essential and discretionary items. According to AMVO with data from eTSR NIQ, fashion purchases grew 41.7% during 2023, followed by small appliances (38.2% growth), non-alcoholic beverages (37.2%), and beauty and personal care (32.7%).
Market Entry Strategies
Expanding your e-commerce business into Mexico is an exciting prospect. As you consider making this significant leap, understanding the regulatory landscape of operating in Mexico, such as customs requirements and restrictions, becomes paramount. Compliance is the vehicle for scalability.
In this section, we'll explore three key strategies to consider for your market entry:
- Direct-to-Consumer Model - Setting up a 100% foreign-owned subsidiary will provide the opportunity to connect directly with your Mexican customers.
- Distributor Partnership - Leveraging local expertise to boost your market reach and streamline operations.
- Cross-border E-Commerce - utilizing your existing setup and marketplace infrastructure to serve Mexican customers without fully localizing operations in Mexico
Each of these strategies have pros and cons and the business case and goals will determine the best fit for each company.
Direct-to-Consumer Model
The direct-to-consumer (DTC) model allows companies to establish a direct relationship with their customers, offering control over branding and customer experience. This model works well for companies with a strong brand presence and the resources to manage logistics and customer service.
The Mexican subsidiary of the foreign company imports or hires a distributor to import the merchandise and distribute it to the final consumer. At least 2 shareholders are required to incorporate a 100% foreign-owned entity in Mexico. Read the additional requirements and process for incorporating a legal entity in Mexico.
Distributor Partnerships
Partnering with established distributors would allow a jumpstart on sales channels, that applies through retailers and marketplaces like Mercado Libre, Amazon Mexico, and Linio. This provides immediate access to a large customer base. Distributor business models aim at being efficient with Mexican customs, logistics, and product placement, making it easier for foreign companies to enter the market.
In some cases, the marketplace will import the product, but in the majority of cases, either the Mexican subsidiary or a third party would importation, warehousing and shipping to final consumer.
Cross-border E-commerce
Cross-border e-commerce allows companies to sell products to Mexican consumers from their home country. This model allows companies to quickly access the market, virtually eliminating any initial setup investment. However, companies would notice higher handling costs, usually transferred to the end customer's retail price.
This model eliminates the need for local inventory and warehousing, but it requires efficient cross-border logistics and compliance with import regulations. A third party company in Mexico would import, warehouse and ship the products to final consumers.
The taxes and tariffs would be paid by the end consumer, directly affecting the purchasing experience, considered as an obstacle for scalability.
Choosing the Right Business Model
Selecting the right business model depends on your company's resources, goals, and target audience. Whether you opt for a DTC approach, distributor partnership, or cross-border e-commerce, each model has its benefits and challenges.
Logistics and Fulfillment
Shipping and Delivery Options
Efficient shipping and delivery are critical to the success of your e-commerce operations. Mexico has an infrastructure network catered to industrial and manufacturing activity.
According to the Mexican government site Proyectos Mexico, of the 356 infrastructure projects currently in operation at the close of Q2 2024, 60% are related to transportation, 20% electricity and 14% hydrocarbons.
Get a quote for cross-border logistics and 4PL services for your e-commerce activities in Mexico.
There is a robust network of partners dedicated to contract logistics, providing economies of scale for growing operations. Some of the top courier services installed in Mexico include: DHL, FedEx, UPS, USPS, Correos de Mexico, Estafeta, and RedPack.
Fulfillment Partners: Inventory Management and Warehousing
Effective inventory management ensures that you have the right products available when customers place orders. Make use of 3PL/4PL capabilities and utilize advanced inventory management systems to track stock levels, forecast demand, and automate replenishment processes. Additionally, consider setting up local warehouses to reduce shipping times and costs.
Returns and Customer Service
A seamless returns process and excellent customer service are vital for building customer trust and loyalty. In Mexico, return policies are mandatory for online sales. If not included, the consumer has a right to file a compliant with PROFECO. Remember to add cancellation policies guarantee, returns and other policies that make you competitive in the market. Invest in customer service channels, including live chat, email, and phone support, to address customer queries and concerns promptly.
Added to warehousing, managing this return operations and repackaging are key when establishing a WMS/Fulfillment partner.
Cross-border Logistics Challenges
Navigating cross-border logistics can be complex, with challenges related to customs clearance, tariffs, and shipping costs. Work with experienced logistics partners who understand the intricacies of cross-border trade and can help you overcome these challenges efficiently.
Doing Business in Mexico: the Legal and Regulatory Environment
Understanding Mexican Customs
Mexican customs can often be more complex than in other countries, leading to unexpected costs and delays for businesses. To avoid these issues, it's crucial to undergo the right due diligence to understand the specific regulations and requirements right from the start.
Key considerations:
- Product Classification - determined by a Mexican customs broker rather than relying solely on a standard HTS code book. The correct classification by a local expert can help accurately calculate duties and avoid compliance issues.
- Tariffs - these are determined by the product's classification, details and origin may affect the IGI (General Import Tax). Knowing product's use, industry, country of origin and data sheet is essential to accurately calculate potential duties.
- Import Restrictions - restrictions vary by product use, industry, and compliance with Mexican Standards (NOMs). For example electronic devices like coffee makers must pass specific tests to meet these standards.
- NOM Certification - the importer and distributor in Mexico must hold the NOM Certification for the product, not the manufacturer. If you're importing products, ensure you have this certification to comply with Mexican regulations.
As one of the NOM requirements in Mexico, the label must include specific information, as well as appear in Spanish on the product.
For certain products, additional documentation is required for HS codes of the products for the importation process. The customs broker will require pictures, data, usage sheet and packaging details. This compliance must be secured before the exporter sends their shipment, in order to avoid costly delays.
Tax Implications
Mexico's tax system includes various taxes such as value-added tax (VAT) and income tax. Register your business with the Mexican tax authorities and ensure compliance with all tax obligations. Consider consulting with a tax advisor to understand the implications and optimize your tax strategy.
- Income Tax - 30%. Taxable base is profit.
- General Import Tax (IGI) - (0-35% generally speaking) - Import tax, specific to product.
- DTA - (0.8%, can change depending on entry port, capped) - Customs tax
- VAT (import) - 16% over imports (CIF price+IGI+DTA) x 16% VAT
- VAT (market) - 16% over sale price throughout the supply chain, witholdings apply (8% in border cities)
- VAT (exports) - 0%
CIF = Cost, Insurance, Freight
DTA = customs processing fee ("derecho de trámite aduanero")
The duty de minimis threshold is $1,000 U.S. dollars and the tax de minimis is $50 U.S. dollars. If the CIF value of an order to Mexico is over 50 USD, then tax will be charged. If the CIF value of an order to Mexico is over 1,000 USD, then duty will be charged. Shipments with a CIF value under the tax and duty de minimis will be considered a tax-free and duty-free import; if the CIF value is over both of the de minimis values, duty and tax will be charged.
An example:
Other taxes are applied to alcohol, tobacco, pesticides, gambling, and junk foods. Other duties such as antidumping or countervailing may be applied by the authorities.
Read about Mexico's trade agreements.
Consumer Protection Laws
In Mexico, the protection of consumer rights is governed by a set of laws and regulations aimed at safeguarding the interests and well-being of consumers. Many of these regulations are applicable for e-commerce businesses. Some of them include:
- Federal Law of Consumer Protection that empowers the Federal Consumer Protection Agency (PROFECO)
- Mexican NOMs or Official Standards
- National Commission for the Protection and Defense of Financial Service Users (CONDUSEF)
- Federal Commission for Protection against Sanitary Risks (COFEPRIS)
- Mexican Institute of Industrial Property (IMPI)
- National Institute of Transparency, Access to Information and Protection of Personal Data (INAI)
On April 30, 2019, the Dirección General de Normas of the Ministry of Economy published in the Official Gazette of the Federation (DOF) the Declaration of Validity of the New Mexican Standard (NMX) of Electronic Commerce, which has the purpose of guaranteeing the rights of consumers who make purchases by these means, will seek an equitable legal framework that facilitates the conduct of commercial transactions, providing certainty and legal certainty.
It establishes that the consumer must be informed by the supplier about the right he has to revoke his consent without liability or justification, within the next five days from the delivery of the good or product or the acceptance of the service. The supplier must also provide its commercial name, brand, denomination or business name, Federal Taxpayer Registry, physical address within the national territory, telephone number and email in order to follow up on the transaction or complaints that may arise.
The supplier must provide a section so that consumers can rate and comment on the products and services purchased, as well as their experience during the purchase. It is very important that the cost of the product or service must be informed in its entirety, including taxes, shipping costs, discounts or additional charges in national currency.
A privacy notice is also required for any website that stores personal data.
Payments & Processors
Offering a variety of payment methods is essential to cater to different customer preferences. Popular payment methods in Mexico include credit and debit cards, digital wallets (such as PayPal and Mercado Pago), and cash payments via OXXO stores. Providing multiple payment options not only enhances the checkout experience and reduce cart abandonment rates, but it's quickly becoming common practice. This leaves room for innovation among fintech and market place platforms.
Fintech is a booming industry in the Mexican market. Transactions made through mobile devices have experienced significant growth, both in value and volume. Since 2015, the Government of Mexico has introduced reforms in the sector with a focus on a financial inclusion strategy. Fintech is a key pillar of these initiatives, paving the way for new opportunities for U.S. firms to enter the Mexican market. With over 650 fintech start-ups, Mexico is one of the largest fintech markets in Latin America. Most Mexican fintech companies are focused on payments and remittances, personal financial management, crowdfunding, and lending.
According to Statista, over 85% of the Mexican population has a mobile phone, and many cannot afford to own a computer. Therefore, many rely on their phones to conduct financial transactions. This provides opportunities for new and improved processes for sending and receiving payments.
Conclusion
Mexico’s e-commerce environment provides an exciting opportunity for foreign companies. By understanding the market, navigating legal complexities, and building a strong online presence, you can establish a successful e-commerce business. Stay informed, invest in local partnerships, and continuously refine your strategies to thrive in Mexico's dynamic e-commerce landscape.
Ready to explore the Mexican e-commerce market? Let’s talk! We can help you start today and unlock the potential for growth and success by proving your project’s viability, and entry strategy.
Humberto Elias is an Industrial and Systems Engineer that brings 10 years of extensive experience in business development and international trade, with a particular focus on helping companies understand and navigate the Mexican Market. With an MBA from a Directors School in Mexico, Humberto has developed a deep understanding of the operational, financial, and regulatory landscapes essential for successful business expansion.
His professional journey follows the supply chain trend, spending 5 years building a Trading Company in China, and 3 years helping companies establish a presence in Mexico, equipping him with firsthand insights into cross-cultural business practices and strategies for effective market penetration. Humberto's expertise makes him a trusted advisor for companies looking to explore new markets, particularly in the dynamic and challenging environment of Mexico.
