From the country’s strategic geographic location to its 14 free trade agreements, the advantages of manufacturing in Mexico are plenty. But are things really as good as they seem? Here’s what you need to know about the realities of doing business in Mexico.
Starting Your Business: How Easy Is It?
While navigating certain procedures can be difficult, such as registering with the Mexican tax authority, starting up a manufacturing business in Mexico is significantly easier than it was in the past. This is especially true for companies that choose to operate under Mexico’s shelter program.
Arguably the easiest mode of entry into Mexico, the shelter model allows companies to forego establishing their own Mexican entity, significantly lowering startup times and legal risks. What’s more, taking the shelter route streamlines the application process for cost-saving certifications, like the country’s IMMEX program.
Common Myths About Doing Business in Mexico
The ease with which they can get their operations up and running isn’t the only concern companies might have. Here are some of the top myths that prevent companies from making the move to Mexico—and why they aren’t true.
Myth: Mexico isn’t a safe place to live or do business
Reality: When discussing myths and facts about Mexico, the idea that Mexico is a dangerous place to live is always the first to come up. In reality, Mexico is just as safe (and in some cases, safer) than areas in the United States. As long as you employ common sense and take proper safety measures, you shouldn’t face any issues.
Myth: Mexican manufacturing is only popular for its cheap labor
Reality: Yes, labor costs in Mexico are cheaper compared to those in the United States or China, but that doesn’t mean manufacturers sacrifice the quality of their production. In fact, Mexico has become known for its world-class talent across many industries, including aerospace and automotive. The Mexican government has invested heavily in education and training for its workforce, and the country graduates tens of thousands of young, eager engineers every year.
Myth: Manufacturing in Mexico just doesn’t have the same benefits as manufacturing in China
Reality: China was once considered “the world’s factory,” but that title is slowly changing as a result of rising labor costs, ongoing supply chain issues, and the U.S.-China trade war. In addition to offering lower labor costs, Mexico gives manufacturers the benefits of close geographic proximity to the United States and a stable trade relationship with countries across the globe.
The Legal Realities of Running Your Business
Opening a manufacturing operation in Mexico (among any country) requires, of course, compliance with local laws. Here are some of the biggest compliance standards businesses must navigate to successfully run a business in Mexico.
Within the last decade, Mexico has made significant updates to its labor laws, many of which may feel unfamiliar to United States manufacturers. In Mexico, for example, standard work weeks can reach 48 hours across a maximum of six days. Employers are also required to participate in a 10% annual profit-sharing program.
Manufacturers flock to Mexico for tax advantages, including the potential for VAT tax exemption. The Mexican Tax Authorities offer three levels of exemption, “A,” “AA,” and “AAA,” each of which offers an increasing number of benefits. However, to qualify for exemption, manufacturers must meet stringent requirements.
Product Safety Regulations
Mexico’s safety and quality assurance requirements used to be quite lax, but now, The Federal Consumer Protection Agency (PROFECO) has significant power, including the ability to execute mandatory recalls. Failing to comply with the country’s safety standards and procedures can result in serious damage to your reputation and bottom line.
NAPS: Your Single Point of Contact for Mexican Manufacturing
Navigating the realities of doing business in Mexico can feel intimidating, but you don’t have to go at it alone. As a Mexican manufacturing expert, NAPS is here to be your single point of contact for all of your business needs, including human resources, payroll, tax compliance, and more. Contact NAPS today to learn more about how our outsourced administrative and compliance management services help you find long-term success in Mexico.