doing business, mexico, manufacturing

Although the southernmost country in North America is commonly known as Mexico, the country’s official name is the United Mexican States. The federal presidential republic of Mexico has 32 states and crosses four time zones. The country declared its independence from Spain in 1810 and was formally recognized by Spain as a separate country in 1821.

Despite its relative newness as an independent country, Mexico has a long and fabled history. It was home to multiple advanced civilizations, including the Olmecs, Aztecs, Zapotecs and Mayans.

Mexico stretches from the Gulf of Mexico across the continent to the Pacific Ocean. It is the 15th largest country in the world by landmass, making it around three times the size of Texas. Its climate varies from tropical to desert.

Manufacturing in Mexico

Typical manufacturing products include food and beverages, tobacco, chemicals, iron and steel, petroleum, mining, textiles, clothing and motor vehicles. Mexico is a feasible option for manufacturing companies looking to reduce their production and labor costs while maintaining a presence in North America.

As of 2017, industrial production in Mexico is not growing, dropping their global ranking for manufacturing growth to 185th among all countries. This means that most countries in the world are growing faster in the area of industrial production than Mexico. While manufacturing accounts for about 31.6 percent of the country’s GDP, it employs only 24 percent of the workforce. Unemployment is relatively low at just under 4 percent, but underemployment may run as high as 25 percent. Concerns about NAFTA have put a damper on economic growth.

Other Important Industries

Services make up 64 percent of Mexico’s GDP, and tourism is an important part of the Mexican economy. The World Tourism Organization ranked Mexico as the sixth most visited country in the world because of the climate, beaches, ancient ruins and architecture.

Key agricultural commodities include corn, soybeans, rice, beans, cotton, coffee, fruit, tomatoes, beef, poultry, and dairy and wood products, but agriculture makes up just under 4 percent of the country’s GDP. More than 54 percent of the land in Mexico is devoted to agriculture.

Supply Chain Infrastructure for Manufacturing

Mexico has strong communication and transportation infrastructures. When looking at telecommunications penetration, Mexico ranks 13th in the world for landline subscriptions per 100 inhabitants and 14th for cell subscriptions.

Since Mexico’s economy is largely dependent on imports and exports, the need for airports, roads, rail and intermodal facilities is acute. Fortunately, Mexico has the infrastructure to support its economy’s dependence on importing and exporting goods.

Shipping

Mexico also has miles of paved roads, abundant standard gauge railroad tracks and many navigable waterways. The country has five major seaports and multiple intermodal terminals, making it simple to move goods in or out of the country.

Mexico has 243 airports with paved runways, many of which are capable of servicing large freight planes. Mexico moved around 713,985.467 mt km of air freight in 2015, helping to cement its reputation as an excellent trade partner. In fact, Mexico ranks number 3 in the world for exports and number 15 for imports according to information published in the CIA World Factbook.

Workforce

Most of Mexico’s population is clustered in the middle of the country between the states of Jalisco and Veracruz. Roughly 25 percent of the population lives in or around Mexico City, the country’s capital. More than 80 percent of the population lives in urban areas. The population is highly literate, with more than 94 percent of the people able to read and write. The average person in Mexico attends school for 13 years. More than 92 percent of the populations speaks only Spanish.

Economy

Mexico’s economy is the 11th largest in the world with a GDP of $2.4 trillion. Two-way trade of goods and services ran to $623 billion, and Mexico has free trade agreements with 46 countries. More than 90 percent of its trade operates under free trade agreements.  

Since 2013, Mexico’s economy has grown an average of 2 percent per year. This is a result of declines in oil production and concerns about weak rule of law in the country. The current concerns about NAFTA have also had a dampening effect because the United States is Mexico’s biggest trading partner, accounting for 79.9 percent of its export volume.

In addition to NAFTA, Mexico is a member of the Pacific Alliance, of which Peru, Colombia and Chile are also members. Primary export commodities include manufactured goods, electronics, vehicles and auto parts, oil, silver, plastics, fruits, vegetable, coffee and cotton.

Mexico imported around $420.4 billion in 2017. The U.S. accounts for 46.4 percent of imports, with China and Japan making up another 22 percent. Imports include metalworking machines, steel mill products, agricultural machinery, electrical equipment, automobile and aircraft parts, plastics and natural gas and oil products.

Tax Rules

Mexico requires most businesses to make six tax payments per year, with taxes equaling about 52 percent of profit.

It may take a long time to resolve contract disputes in Mexico, but on average the resolution time is less than half that in other Latin American and Caribbean countries.

Mexico is very well regarded in its ability to protect intellectual property. NAFTA has very strict rules regarding intellectual property protections, and Mexico reworked its intellectual property protection rules to require arbitration in international courts as required. However, intellectual property must be registered with the Mexican Institute of Industrial Property to be covered.

Patents are granted for 20 years and cannot be renewed. Trademark protections extend for 10 years and are renewable.

Special Circumstances

Mexico is ranked number 50 of all countries in the world when it comes to starting a business. However, obtaining permits, getting electricity and registering property are all areas to keep an eye on when planning a new business in Mexico because they may take a long time to complete due to bureaucracy and local customs. For instance, obtaining a building permit requires 15 separate steps, most of which must be completed sequentially and only one of which can be completed online.

Getting Down to Business

Doing business in Mexico has unique advantages and challenges, and because of the inflation rate of 6 percent, currency concerns may factor into business dealings. QAD Internationalization enables companies to identify and overcome the challenges associated with exchange rates, local regulations and other aspects of doing business in Mexico.

Did you enjoy learning about Manufacturing in Mexico? Learn more about manufacturing and doing business in other great countries around the world.

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