Mexico has emerged as a strategic hub for international companies looking to expand operations, capitalize on nearshoring opportunities, and access North American markets. However, successfully doing business in Mexico requires careful planning and a deep understanding of the country’s legal, financial, and operational landscape. Here are the key steps to get started:
Understand Mexico’s Business Environment
Before entering the Mexican market, companies should conduct thorough market research to understand industry trends, competition, and local consumer behavior. Evaluating Mexico’s trade agreements, such as USMCA, and tax incentives like IMMEX can provide insights into cost-saving opportunities.
Market Research
- Industry Research: Economic and industry indicators point to trends and opportunities in the market.
- Labor Benchmarking: Tailored industry data to assess labor market conditions and inform workforce strategies.
- Competitor Landscape: Identify local and international competitors and analyze their market share, pricing strategies, and capabilities.
- Consumer Trends: Understand shifts in consumer demand, preferences, and purchasing behavior in relevant industries.
LABOR MARKET ANALYSIS
Custom-built analysis focusing on availability of skilled labor, compensation benchmarking, and education, leveraging a proprietary data platform.
Institutional Relations
- Economic and Industrial Policy: Understanding government incentives for certain industries, such as aerospace, automotive, and electronics.
- Regulatory Trends: Tracking new labor, tax, or environmental laws that could impact business operations.
- Engagement with Local Authorities: Building relationships with government agencies to facilitate permitting and compliance.
2. Analyze Data & Project Feasibility
A data-driven feasibility study ensures that businesses make informed investment decisions. This stage includes financial modeling, operational structure evaluation, and site selection.
Understand Operational Models
- Business Model: Joint Venture, Contract Manufacturing, Business Process Outsourcing, Shelter Operation, Wholly-Owned Subsidiary, and more.
- Business Incorporation & Permits: Understand local company formation requirements, licenses, and permits.
- Turnkey Solutions: Establishing an operations partner and soft-landing support as integral solutions for launching and administering the operation.
BUSINESS STRUCTURES IN MEXICO
Consider short and long-term business strategies to compare structuring business for preferential tax treatment, and mitigate risks.
Build a Cash Flow Model
- Labor Costs: Varies by region and skill level but remains competitive compared to the U.S.
- Tariffs & Customs Duties: Different scenarios depending on a number of trade agreements and incentive programs.
- Tax Structure: Compare how different operational models and various incentives could affect your tax rate.
Site Selection Analysis
- Customer Base & Proximity: Consider proximity to key customers, major distribution hubs, and export opportunities.
- Infrastructure & Utilities: Ensure access to stable electricity, water, and road networks.
- Labor Availability: Some cities have a larger skilled workforce for specific industries.
- Logistics: The landscape of Mexico varies greatly and each region in Mexico will have pros and cons, including costs.
SITE SELECTION PLATFORM
A custom-build analysis, leveraging proprietary and public data, to determine the ideal location for expanding operations in Mexico.
3. Conduct a Regulatory Review
Ensuring compliance with Mexican regulations is essential for smooth operations.
Trade Compliance
- Import/Export Regulations: Understanding tariffs and trade rules under USMCA, CPTPP, and other trade agreements.
- Customs Procedures: Ensuring fast and cost-efficient clearance for goods.
- Regulatory Certifications: Some industries require additional approvals, such as COFEPRIS for pharmaceuticals or NOM standards for electronics.
ORIGIN ANALYSIS
Ideal to validate USMCA compliance in light or potential tariffs, and support a supply chain regionalization strategy.
Environmental Compliance
- Permitting & Impact Assessments: Many industrial projects require an Environmental Impact Assessment (EIA).
- Emission & Waste Management: Compliance with SEMARNAT regulations on hazardous waste and emissions.
- Sustainability Initiatives: Some states offer incentives for renewable energy use and carbon reduction programs.
Financial & Tax Analysis
- Tax Incentives & Obligations: Identify corporate taxes, VAT, local tax incentives, special economic zones, and tax treaties.
- Operating Costs & CAPEX: Evaluate costs related to utilities, wages, real estate, transportation, and infrastructure improvements.
- Currency & Exchange Rate Risks: Consider currency volatility and repatriation rules for profits.
- Banking & Financing Options: Examine local lending conditions, interest rates, and credit availability.
- Repatriation of Profits: Review foreign investment regulations and restrictions on capital movement.
4. Special Interest Due Diligence
- Technology & Digital Readiness: Assess local infrastructure for automation, IoT, and AI adoption, evaluate cybersecurity and data protection risks, and ensure access to cloud computing, ERP systems, and digital supply chain capabilities.
- Environmental & Sustainability Analysis: Ensure compliance with international environmental standards, evaluate waste management and resource efficiency costs, and assess local corporate social responsibility (CSR) expectations.
- Supply Chain Availability: Evaluate local suppliers, logistics networks, and raw material availability.
Expanding into Mexico’s manufacturing sector presents immense opportunities, but doing business in Mexico requires thorough planning and compliance with local regulations. By conducting market research, financial modeling, site selection, and regulatory analysis, companies can maximize operational efficiency, reduce risks, and gain a competitive edge in the region.
Would you like assistance with customized feasibility studies, labor cost benchmarking, or site selection analysis?
Contact us today to learn how we can support your strategy.
