Business analyses can offer compelling arguments in terms of reduced workforce costs and access to new markets. Projections are exactly that, optimistic estimates based on historical data. It is simply hard to quantify the future. Corporate leadership is challenged by balancing short and long-term gains or risks in a volatile economic environment. As you evaluate expansion into Mexico, here are five things to consider.
Five reasons United States companies should expand to Mexico
First, moving an operation to Mexico can be an attractive option. Mexico’s economy is growing. In 2017, Mexico’s economy was ranked 15th largest(“Exporting to Mexico – Market Overview”). In 2018, Mexico was the 11th largest economy in the world. It is also the United States’ second largest export market and third largest source of imports (“The World Factbook — Central Intelligence Agency”). According to the World Trade Bank’s ‘distance to the frontier’ value (DTF), Mexico has an overall rank of 49 in contrast to the United States’ rank of six. Mexico is also close geographically, which makes oversight visits from corporate offices in United States easier.
Second, over the past several years the Mexican government has worked to provide a business-friendly environment. While some actions have been walked back, such as corporate tax rate reductions, overall the business-friendly trend has been positive. In 2010, it became easier to start a business in Mexico because the government set up an electronic platform for company registration, as well as introduced electronic payment systems for payroll, property, and Social Security taxes. Obtaining construction permits has been an up-and-down roller coaster; in 2012 it became easier to obtain construction permits because internal administrative procedures had been merged, yet the cost of those permits has increased due to fees being assessed by Mexico City and Monterrey.
Third, any business operation requires a reliable electrical supply. Between 2013 and 2018 there have been several improvements to the electrical grid. Beginning in 2013, the distribution utility streamlined procedures and began to use a geographic information system (GIS) to map the electricity distribution network. In 2014, Mexico began to enforce a “silence is consent” rule for the approval of the feasibility study for a new connection. In 2018, Mexico City improved
Fourth, the World Bank has a measure called ease of doing business. This measure assesses the friendliness of business regulations. In 2018, Mexico appeared in the top 50 of the 190 nations examined. These improvements have resulted in 14.9% of informal business owners moving into the formal economy (World Bank Group, 2018). This means that relocating organizations will have a larger pool of reliable vendors of goods and services to support them.
Fifth, Mexico is well-positioned in terms of overall growth, globally. Mexico remains an Emerging and Developing Economy (EMDE). In June 2018, the World Bank reported that investment was recovering. Mexico is continuing its trend of improving Gross Domestic Product (GDP) and domestic demand for commodity investments has increased. Business confidence is up both inside and outside of Mexico. These factors make Mexico an appealing prospect for United States corporate relocations and expansions.
In 2017, Mexico was the United States third largest trading partner and its second largest export market. Mexico and the United States have close ties with each other. Geographic proximity, business-friendly improvements in government regulations, an increasingly reliable electrical grid, and history as long-time trade partner make Mexico an attractive destination for relocating United States operations.
By Barbachano Staff
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Barbachano International (BIP) is the premier executive search and leadership advisory firm in the Americas (USA, Mexico, Latin America, & Canada) with a focus on diversity and multicultural target markets. Outplacement and Executive Coaching services are provided by our sister allied company Challenger Gray & Christmas. Since 1992, BIP and its affiliates have impacted the profitability of over 50% of Fortune 500 Companies. BIP has been recognized by Forbes as Americas’ Best Executive Search Firms and currently ranks #27 and #3 on the West Coast. Headquartered in San Diego, California with satellite offices in Florida and Mexico. As member-owners of NPAworldwide Recruitment Network, we are supported by partner offices in over 50 countries.