| |
|
|
|
|
|
|
The Mexican Market
Mexico's business culture derives
from unique demographic, social and legal aspects that should be considered before
starting business operations. Mexico City is the business hub of the country and
offers excellent facilites, however we point some tips that will help you to deal
with this frantic city and the way mexicans usually deal with foreigners and how
security has to be focused. Investment opportunities abound but for any serious investor
taxes and legal issues are the starting point for their ventures.
The social base
Mexican socioeconomic levels are distributed pyramidaly: 8% high level, 30% medium
and 62% of poor families. Multiple crisis have made Mexican consumers very edgy and
feasible to scale back their budgets. For this reason large retail stores make up
constant adaptations on the marketing mix for a low-income consumer. Recent recovery
was an opportunity for middle class consumers to adquire some imported items but
specially cars, furniture and large appliances. Since credit is scarce, must purchases
are made in cash, even big ones! and is common to observe "no interest"
offerings at retail stores, but be careful not to offer bulk or cheap products without
a careful study: Mexicans are careful consumers. On the other hand, professionals
and higher class consumers are more sophisticated buyers who are used to purchase
internationally. Local promotion aspects
In terms of population, Mexico has 97.4 million habitants and 20 million live in
Mexico City area. Most of the population is below 15 years
old, which makes a country of youngsters but with little education opportunities
(only 7.6 years in average). Refering to residential figures, 67% of Mexicans prefer
to own their homes, while 27% rent them, but only 6% have their homes mortgaged.
This figures show that it is important for a newcomer to make market research via
commerce chambers and international consultants. Trade shows are good marketing forums,
where it is easy to know your competitors, identify distributors and approach to
consumers.
Business tips
Surprisingly, peak hours are from 3:00 to 9:00 pm, many exhibition rooms are not
attached to hotels and it is rare to receive visitors from other cities, even at
national shows and finally, only few trade shows are worth participating. On the
advertising field you will find both international and local agencies which may be
helpful depending on what your target market is and technological resources are needed.
Although printed media isn't as popular as in more developed countries, news papers
and magazines are a useful way to reach specific market niches with a wide variety
of choices (TV magazines are the most popular) with an average full page price of
US $6,000. Television is the most important medium, leaded by Televisa and TV Azteca
companies and paid television offer better prices and more segmentation with increased
popularity. Radio is a very popular media, specially AM stations, but in Mexico City
prices are significantly higher due to its large population. Telemarketing and Internet
are becoming more popular an can help your company to reach new markets or promote
new products at relatively low cost. Both media are useful not only for sale purposes
but for strenghtening the company image and collect consumer information. In the
year 2000 there were more than 3 million internet users in Mexico, but on line purchases
are quite low in comparison with the economy. In respect to sales, direct sales should
be legally advised, since there are many regulations and procedures.
A more effective way to sell in Mexico is by a local sales representative or a company
agent (who is considered an employee under Mexican labour law) in both cases the
company is resposible for its products. Distributors act independently and market
your product on their behalf with no labour responsability. While franchises became
popular in recent years, they still face several legal obligations and taxations
that must be considered. If your company considers worth to be treated as a "permanent
stablisment" it is posible to set a branch or start a joint venture with a Mexican
company. On these two cases larger investment is needed and more profit is expected
consecuently. If you prefer to mantain your independence, a Participation Agreement
is a useful legal treat.
Basic legal issues
Complying with Mexican law is a difficult and complicated job that has to be done
professionally. Some of the more specific topics to be considered are: protection
of intellectual property, environmental regulations, inmigration, tax payment and
labour regulations. Mexican law is derives from the Constitution (including international
treaties) and companies have to observe Federal, State and Municipal laws at the
same time. All this conform the public law, which can not be modified by citizens,
on the other hand there are private laws, such as Civil and Commercial laws subject
to citizen amendments. In Mexico prevails the law principle that "citizens can
do everything except that against the law, while gouvernment does only what is written
on the law".
Business structure
Investor's role and level of market participation dictates the appropiate business
structure. Mexican law stablish two kinds of legal framework for Mexican companies:
Sociedad Anónima (S.A.) A limited liability stock company formed by more than
two shareholders with a minimum capital in pesos of about US $5,260 and registrered
before certain authorities. Sociedad de Responasbilidad Limitada (S. de R.L.) Also
a limited liability company but formed by stakeholders with one stake for every partner
and minimum capital of about US $315 Foreign companies that will establish branches
in Mexico must register their opperations before the Secretaría de Economía
and Secretaría de Relaciones Exteriores.
Taxes
Fiscal obligations depend on the corporate structure and degree of presence of the
foreign company in Mexico. Basically the three stages of involvment are: exportation
only, representation with no permanent presence and permanent branch or office. All
of these options need to be reported to tax authorities (Secretaría de Hacienda)
and register its local presence at the Registro Federal de Contribuyentes in charge
of SAT (Sistema de Administración Tributaria). In rough terms there is a 35%
Federal tax (so called ISR) on incomes starting from the fifth year of opperations
and a 15% tax on consuption (called IVA). There is also a 1.8 % tax on assets. Both
taxes have deductions and exceptions that have to be consulted with a public accountant
or consulting firm. In order to avoid double taxation there are several international
treaties that a foreign company must consider. By 2002 a major tax reform will be
approved in order to simplify procedures and stimulate investment. It may seem a
dul task, but in order to make cost an expenses deductible, companies have to record
them accurately, since Mexican law is very formal, but it is possible that tax reform
will change these requirements.
Monopolies
Although Competition Reguatory law is a recent one, Mexican gouvernment is preventing
monopolies to form by mergers and adquisitions or by competitors agreements that
hazards the consumer freedom as well as relative monopolistic practices on relevant
markets.
Trademarks
A more strict enforcement is expected to be applied to defend intellectual property.
Meanwhile, it is very important for a company to registrer its trademark and products
at the Instituto Mexicano de la Propiedad Industrial, and renew it after ten years.
Patents also have to be registered.
Environmental regulations
Recent In-bond industry and international treaties have influenced new environmental
laws that companies have to observe. Procedures have been symplified but regarding
to industrial waste regulation and enforcement is very strict; voluntary observations
can be done applying ISO 14000 Environmental Management Certification. The Mexican
Secretariat for the Environment (Semarnat) has incentive policies for companies which
purchase or use environmental friendly technology and works with other gouvernmental
institutions to protect workers and comunities from hazardous materials and emergencies.
Inmigration
Although tourist visitors have to bear a visa (FMT), business travelers can obtain
a Non-Resident visa (FM-3) for one year or a FM-3, which entitles you four years
and become resident on the fifth. In this case you can import your housing and car
prior to a special permition from the Mexican Consulate and has to be obtained six
to eight weeks before traveling to Mexico. American or Canadian citizens who come
for less than one moth on business or technical support can obtain a Nafta visa named
FMN. Other countries which have international treaties with Mexico can obtain a similar
visa called FMVC.
Contracts
It is important to say that stablishing a negotiation and signing contracts with
Mexican companies follow different rules and procedures than in other countries.
For this reason it is highly advisable to contact an international law firm or a
local one with international experience in order to fulfill your company and your
partner's rights and demands. On the other hand, if you are introducing merchandises,
they also have to comply with certain standards, payments, documentation to be cleared
at customs. Based on several laws, gouvernmental contracts must follow officious
legal procedures and participate in a public auction. Those goods and services needed
by the gouvernment are allways published at the Diario Oficial bulletin. Once a company
is chosen, losing bidders can appeal but the gouvernment has the right to suspend
any contract if it considered to be in public interest.
Business operation
Mexican executives
Mexican excecutives are usually well trainned and educated. Bilingual excecutives
in special, may play a key role in business management and relation with foreign
partners, since their background is locally rooted but their formation has been international
oriented. Moreover, Mexican executives are important elements of local market strategy
and formation for a company seeking into the Latin American market. For this reason,
bicultural, bilingual and multilingual excecutives might command higher salaries
than their foreign counterparts.
On the other hand, this kind of executive isn't easy to find, since university education
is only for few middle and higher socioeconomic levels and some of them decide to
go working in the USA. According to the American
Chamber of Commerce "excecutive compensation in Mexico is higher than many
companies would expect, especially when one factors in fringe benefits mandated by
law or tradition" It is expected that newer excecutives should be more digital-literate
with more marketing and sales backgrounds, as it is happening in the United States.
There is also more Canadian and European presence in Mexico, whose companies also
require multicultural executives, which is making competition even tough.
The Working game
Despite Nafta agreement and the stablishment of many new companies in Mexico, worker's
standars of living haven't improved yet due to low salaries, but in respect of labour,
social and security regulations, companies have to carefuly follow Mexican law. Fringe
benefits for workers will add labor cost to a low salary (about US $ 4.20 minimum
per day). Law also gives employers the right to terminate work relationship if the
worker commit non-ethic acts otherwise compensate him or her according to law. All
this obligations should be consulted to a local attourney who will base its reccomendations
on the Ley Federal del Trabajo and those related with the Social Security System
(IMSS). Since 1997 pension system has been privatized under the so called Afores,
organized as pension funds which banks manage with long term benefits. Agreements
usually work better than court debates, which are both time demanding and expensive
for both parts.
Watch out!
Corporations face in Mexico certain circumstances that have to be observed in order
to operate well. Firstly, it is tough to get a bank credit so you should take a look
at Ex-Im Bank programmes and be careful with currency variations. On the labour aspects
it is good to know that strikes have reduced importantly and that unions have lost
their traditional political link with the gouvernment. Mexico is a source of abundant
and productive labour force but is very important to attain to the law, which is
expected to change soon. Inflation have eroded salaries in recent years but is beeing
controled below 7% while many workers wages increased 10 to 12 % in year 2000. However
there are still many workers' benefits costs involved.
Finally, the third corporate concern is security. Crime affects both local and foreign
companies but foreigners are not a special target. In order to avoid mugging and
carjackin it is important to be descreet in all opperations, vetting new employees,
contract a respectful security and cargo company, stablish access controls and make
periodic simulation exercises, specially those for earhquakes. Foreign companies
will find less problems in Mexico with sophisticated scams on systems, but copyright
infrigments are usually very common. It is advisable to investigate posible parters
before starting a commercial alliance.
Under the present international circumnstances Mexico is a country that offers a
relative transparency and security. All this factors are to be considered but Mexico
remains an attractive place to live and do business.
Adapted form the American Chamber of Commmerce “Mexico Business 2001”
Know more about doing business in mexico looking at the Mexican
economy
|
| |
|
 |
|
|
|
|
|
|
