It’s no secret that companies experience significant benefits when they choose to manufacture in Mexico. From access to the highest number of free trade agreements to the highly skilled labor force, businesses from around the world come to Mexico to drive costs down and boost operational efficiencies.
However, just like any country, doing business in Mexico comes with various challenges. In order to take full advantage of the many benefits of manufacturing in Mexico, companies should be aware of the complexities involved, as well.
If you’re considering shifting your manufacturing operations to Mexico, here are some of the top challenges— along with solutions—you need to know.
1. Ease of doing business
The World Bank ranks countries around the world based on the ease of doing business, and the criteria include various subcategories like getting credit and dealing with permits. Mexico currently has a score of 72.4, compared to the United States’ score of 84. While 72 is still a relatively high score, there are challenging aspects of doing business in Mexico that may influence how manufacturers choose to go about setting up or expanding their business in the country.
While Mexico ranks high for getting credit, the country’s lowest subcategory is paying taxes. Already a complex and arduous process, paying taxes in Mexico is made more difficult by the requirement for in-person interactions with state agencies and the need for hard copy documents.
Starting a business
Ranking 107th for ease of starting a new business, Mexico has tricky procedures that often require advanced preparation and coordination. While the process is much more manageable today compared to what it was in the past, companies that are unfamiliar with the procedures, such as registering with the Mexican Social Security Institute or the tax authority, may have a particularly difficult time quickly and successfully starting a business in Mexico.
Registering property in Mexico can be a time-consuming process. Depending on the state in which they’re conducting business, manufacturers may need to complete as many as four to 10 procedures, and the time to complete them all can range from 18 days to multiple months.
To simplify these business processes and free up internal resources, many companies choose to outsource administrative responsibilities. With the NAPS Administrative and Compliance Management program, manufacturers can focus on ramping up their production while we handle everything else, from licensing to accounting and everything in between.
2. Labor Laws
Mexico offers manufacturers access to a low-cost labor pool, but despite the cost-saving opportunities, navigating the labor laws can be tricky for those that are unfamiliar with them. In general, Mexico’s labor laws favor employees over businesses and vary greatly from other countries’ labor laws. Some of the biggest differences include profit-sharing requirements and mandatory end-of-year bonuses.
In the past, companies often chose to utilize subcontracting or “outsourcing” models because of the strain many employee benefits placed on the employer. However, the Mexican government prohibited employee outsourcing in April 2021.
Now, having local, expert knowledge is the key to making the most of Mexico’s labor laws. By enlisting the services of a shelter company, foreign manufacturers are not only able to hand off complex HR and recruitment processes to industry experts, but they also have someone that can ensure full legal compliance.
As a result of distorted perceptions about Mexico that the film industry and media tend to perpetuate, people often associate Mexico with high crime rates and may hesitate to do business in Mexico because of it. However, Mexico is not necessarily a more dangerous country than other manufacturing hot spots or even the United States.
While Mexico’s large border cities, such as Juarez, are naturally subject to higher crime rates and more instances of drug smuggling, these factors are not necessarily cause for concern. Just as the United States (or any country) has safer and more dangerous spots within its cities, so does Mexico. Still, implementing proper security measures is important, and that task in itself can be a challenge to businesses new to Mexico.
In addition to using common safety knowledge, businesses may enlist outsourcing services, like a shelter service provider, to ensure their business and employees are secure. Site selection is usually included with most shelter services, and the right provider will help your business find a facility that isn’t just safe and secure but is right for your business as well. As experts in the industry, a shelter provider will also be able to consult with you on the best ways to protect your business in Mexico.
4. A new culture and language
Due to its proximity to the United States, much of Mexico’s population is familiar with American culture. However, there are still clear cultural differences in the workplace to which foreign manufacturers will need to adjust. Furthermore, while the working population generally has high levels of English knowledge, business is almost always conducted in Spanish.
Luckily, manufacturers operating under a shelter company, such as one owned by NAPS, have immediate access to experts in Mexican manufacturing, including workplace culture and language, which significantly reduces the pressure of needing to adapt to a foreign environment.
Overcome Any Challenge When You Choose NAPS
Mexico comes with challenges, not drawbacks. With our support and wide range of services in Mexico, you can successfully navigate the complexities of starting or growing your business in one of Latin America’s largest economies.
Reach out to us today to learn more about what our local knowledge and industry experience can do for you.