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The Pros and Cons of Doing Business in Mexico

As this article published in Business without Borders confirms, a wide range of Canadian and US manufacturers are turning their attention towards Mexico for low cost manufacturing to serve the North American market. Yet while the move south seems to be less of a hindrance for large companies such as Bombardier and RIM, small and midsize companies may find it more difficult to navigate the cultural and linguististic differences of this less familiar landscape. That’s where the support of Shelter Services providers like Entrada Group can pay off in dividends…

Recently journalist Jean-Frédéric Légaré-Tremblay interviewed Andrés Rozental, former Mexican ambassador to Canada and former deputy foreign minister. Today he is a consultant at Rozental & Asociados, a Mexico City consulting firm he founded which advises companies on their strategies in Latin America:

The low cost of labour has long been one of the main advantages of Mexico. But China has become a fierce competitor in this area. Is Mexico continuing to hold this advantage?

The costs of labour in Mexico and China today are rather comparable. It is true that the Chinese were very competitive for some time, but it is no longer the case. The cost of labour there increased rapidly and should continue to climb. Today, the average wage in Mexico is only 20% higher than in China.

The most important comparative advantage that Mexico has, however, is its proximity to the North American market, including, of course, Canada. Compared with China, the transportation costs of goods are much lower for Canada when doing business in Mexico.

Mexico has the most free-trade agreements (17 agreements with 49 countries) of any country in the world. Is there an advantage for Canadian companies in that?

Mexico has a lot of free-trade agreements, especially with countries in North America and Latin America, but also with Europe and Japan, among others. This is an advantage for Canadian companies that export products they have made in Mexico and have a Mexican content high enough to fulfill the conditions laid down in these free trade agreements. And this is also an advantage for import: the Canadian companies operating in Mexico can import products from third countries without tariffs or with very low rates.

What other benefits can Mexico provide Canadian businesses?

The main one is certainly NAFTA. That means you can work without much difficulty among the three countries, to settle in Mexico, import products from the United States, export to the U.S. and Canada and so on. Mexico has an industrial and financial system among the most sophisticated in the world, and represents a market of 110 million people, with a growing middle class. The peso is also a very stable currency.

One sign that Mexico is attractive to investors: there are already more than 2,400 companies with Canadian interests on Mexican soil.

Despite the presence of large Canadian multinationals in Mexico such as Bombardier, RIM, Goldcorp, Magna and Scotiabank, we find relatively few SMEs. Why?

This is a general problem. This is not only the case for Canadian SMEs. This is also true for the Americans and any other country, as well as Mexican women who want to settle in the United States or Canada: SMEs in general have difficulty moving abroad, especially where there is a difference of language and culture. They do not have the same resources as multinationals. It is a combination of lack of skills, fear of the unknown, sometimes a lack of financing or [a case where] credit is less available for SMEs.