Country analysis

report: Mexico

PGDM (GLOBAL) 21-23

Global Business Environment

(Group Project)
Authored by:
Nilanjan Mukherjee
Ipsita Sahu
Ramsha Hussain
Prakhar Awasthi
Raksha Mishra

DOON
BUSINESS
SCHOOL
Introduction
Executive Summary
Mexico, with a population of almost 130 million people, a rich cultural heritage and
variety, and enormous natural resources, is one of the world's 15 largest economies
and the second largest in Latin America. The United States borders it on the north; the
Pacific Ocean on the south and west; Guatemala, Belize, and the Caribbean Sea on the
southeast; and the Gulf of Mexico on the east. Mexico is the world's 13th biggest
nation by size, with 1,972,550 square kilometers (761,610 square miles); it is also the
world's 10th most populated country, with roughly 126,014,024 residents and the most
Spanish-speakers. Mexico is a federation made up of 31 states plus Mexico City, the
country's capital and biggest city. Guadalajara, Monterrey, Puebla, Toluca, Tijuana,
Ciudad Juárez, and León are among the other significant cities.

Political & Economic Overview

Mexico's politics are governed by a multi-party system and a federal presidential
representative democratic republic whose administration is based on a legislative
system, with the President of Mexico serving as both head of state and head of
government. According to the Political Constitution of the United Mexican States,
issued in 1917, the federal government represents the United Mexican States and is
split into three branches: executive, legislative, and judiciary. According to their
individual constitutions, the component states of the federation must likewise have a
republican form of government based on a legislative system.

Mexico has underperformed similar nations in terms of growth, inclusion, and poverty
reduction during the previous three decades. Between 1980 and 2018, its annual
economic growth averaged slightly over 2%, slowing progress toward convergence with
high-income nations.

Mexico's economy is diverse, with high-tech sectors, oil production, resource

extraction, and manufacturing all contributing to the country's success. Agriculture
accounted for 3.38 percent of Mexico's GDP in 2019 and employed 12.4 percent of the

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country's active population in 2020, according to the latest World Bank figures. Mexico
is the world's seventh biggest agricultural power, producing coffee, sugar, corn,
oranges, avocados, and limes in enormous quantities. Cattle farming and fishing are
other major food-related enterprises. Mexico is also the fifth-largest producer and
exporter of beer in the world.

Current Economic situation

The country’s economy has contracted by 8.3 percent in 2020, with a steep decrease in
the first half of the year due to demand and supply shocks caused by the COVID-19
pandemic, which had a significant impact on companies, employment, and families. The
recovery in 2021 is on track and is dependent on vaccination rates, pandemic dynamics
including new varieties, US growth, and labour market recovery. To achieve a more
robust and long-term recovery, the country will also need to address some of the most
urgent pre-crisis barriers to development and inclusion.

The unemployment rate in Mexico rose to 4.4 percent in 2020, owing mostly to the
negative economic impact of the COVID-19 epidemic, and is anticipated to fall
somewhat to 3.6 percent in 2021. However, the informal sector is still projected to
account for around 60% of all employment (OCSE).

Is entering the Mexican market a good idea?

Mexico's most promising sectors for entry of international businesses and exporters
include Agriculture, agribusiness, auto parts and services, aerospace, education
services, energy, environmental technology, franchising, housing and construction,
packaging equipment, plastics and resins, security and safety equipment and services,
information technology, transportation infrastructure equipment and services, and
travel & tourism.

Given the scale of the Mexican market, however, there is practically no product that a
firm cannot effectively sell in Mexico with the proper planning, dedication, price, and
service. The market is huge and offers ample opportunities for new and upcoming
businesses.
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Political environment analysis.
Mexico is regarded as a federal republic made up of thirty-one states as well as an
administrative district. Governmental powers are legally split among the executive,
legislative, and judicial departments; but, while the United Mexican States was subject
to unilateral rule in the twentieth century, the president had strong control over the
whole system. The 1917 constitution, which has been modified several times, protects
personal freedoms and civil liberties while also establishing economic and political
principles for the country.

Mexico's politics are governed by a multi-party system and a federal presidential

representative democratic republic whose administration is based on a legislative
system, with the President of Mexico serving as both head of state and head of
government. According to the Political Constitution of the United Mexican States,
issued in 1917, the federal government represents the United Mexican States and is
split into three branches: executive, legislative, and judiciary. According to their
individual constitutions, the component states of the federation must likewise have a
republican form of government based on a legislative system.

Mexico: Political stability index (-2.5 weak; 2.5 strong)

Political unrest is currently one of the most serious risks to Mexico's financial stability
and economic development. Similarly, a poor economy and turbulent financial markets
diminish the odds of a successful democratic transition. Zedillo's economic
performance deteriorates. And a weak administration is unlikely to be able to execute
the essential adjustments to establish true democracy and, particularly, the rule of law.
Furthermore, the continuation of the economic crisis may trigger a political reaction
that jeopardises Mexico's fragile financial stability as well as the economic reforms
being implemented to ensure recovery.

According to data provided for Mexico from 1996 to 2020. The average value
for Mexico during that period was -0.61 points with a minimum of -0.92 points in 1996
and a maximum of -0.06 points in 2002. The latest value from 2020 is -0.85 points. For
comparison, the world average in 2020 based on 194 countries is -0.07 points.
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Taking the assistance of a few notable indicators we can draw a rough idea of where
Mexico currently stands in terms of Political stability

Recent Data

Longer Historical Data

The Political Stability and Absence of Violence/Terrorism Index assesses public opinions
of the chance that the government would be destabilized or toppled by unlawful
or violent tactics, such as politically motivated violence and terrorism. The index
is a weighted average of many different indices, including those from the
Economist Intelligence Unit, the World Economic Forum, and the Political Risk Services.

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Corruption Index
In Mexico, the corruption perception index increased from 29 to 31 points in 2020. This
is the first time Mexico's corruption perception has been scored 30 or higher since
2016. The lowest possible corruption perception score is 0, while a score of 100 implies
that no corruption is perceived in the given country.

This index is a composite indicator that combines statistics on public officials' bribery,
kickbacks in public procurement, misappropriation of state funds, and the efficiency of
governments' anti-corruption measures.

Most international and national indicators of corruption show a rise in both perceived
and real corruption in Mexico in recent years. The country's worldwide standing has
plummeted, with it now ranking near the bottom of nearly every list of corrupt
countries. 14 According to Transparency International's 2017 Corruption Perceptions
Index (CPI), Mexico was rated 135th out of 180 nations. The Americas Society and the
Council of the Americas, in their new Capacity to Combat Corruption Index (CCC),
placed Mexico as one of the worst countries in Latin America, barely ahead of
Venezuela and Guatemala.

Mexico was ranked 102 out of 113 nations by the World Justice Project, and it was one
of the ten most corrupt countries, according to the project's Rule of Law Index (RLI).

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The World Justice Project also assessed the RLI and the absence of corruption (AC) for
each state in Mexico, revealing that corruption varies across the nation, with Quintana
Roo, Mexico State, Guerrero, and Mexico City being the most corrupt.

Cultural Dimensions: A detailed Analysis

Major Religions

Mexico does not have a state religion. However, Roman Catholicism is the main faith
and is strongly ingrained in culture. It is believed that more than 80% of the population
is Catholic. Many Mexicans regard Catholicism as an integral element of their identity,
passed down via family and nation as a cultural inheritance. However, not all Mexicans

Religious Overview

Roman Catholic Other Evangelical Pentecostal

Jehovah's Witness non-Religious Unknown
Other

frequently attend religious services. While roughly 5% of the population is considered

to be religiously unaffiliated, many non-religious Mexicans nevertheless participate in
Catholic festivals.

The Basilica of Guadalupe, which houses the shrine of Our Lady of Guadalupe, Mexico's
patron saint, is located in Mexico City and attracts hundreds of thousands of visitors
each year, many of whom are peasants. Thousands of Catholic churches, convents,
pilgrimage sites, and shrines may be found across Mexico.

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Protestants make up a tiny but rising portion of the population, and their missionaries
have had particular success in converting the urban poor. Syncretic faiths are practiced
by a considerable number of indigenous peoples, which means they maintain
traditional religious beliefs and rituals while still adhering to Roman Catholicism.

Ethnic Groups
Mexico's population is diverse, with indigenous American Indians (Amerindians)
accounting for fewer than one-tenth of the total. In general, a complicated blending of
ethnic customs and perceived heritage has resulted in the biggest component of the
population today—mestizos, who account for around three-fifths of the total—via a
complex mingling of indigenous and European peoples. Mexicans of European ancestry
("whites") make up a sizable proportion of the various ethnic groups that make up the
balance of the population.

Mexico’s ethnic identities may be further complex, considering that ethnicity is a result
of cultural patterns and traditions as diverse as a group's sense of linguistic, religious,
and social past. Given below is a chart that roughly sums up the various ethnic groups.

Major Ethnic Groups

Mestizo Amerindian Other

Languages
The great majority of the population speaks Spanish, which is the official national
language and the language of instruction in schools. An indigenous language is spoken

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by less than one-tenth of American Indians. More than 50 indigenous languages are
spoken by over 100,000 people, including Maya in the Yucatán, Huastec in northern
Veracruz, Nahua, Tarascan, Totonac, Otom, and Mazahua mostly on the Mesa Central,
Zapotec, Mixtec, and Mazatec in Oaxaca, and Tzeltal and Tzotzil in Chiapas. Many
public and private schools provide English as a second language teaching.

Spanish was initially employed in Mexico in the 16th century, during the Spanish
colonisation efforts of what is now Mexico and the Caribbean. Mexico has the greatest
number of native Spanish speakers in the world as of 2018. Mexican Spanish is
influenced by English and Nahuatl, and it is spoken by around 120 million people. The
Mexican government conducts most of its business in Spanish, but it recognizes 68
national languages, 63 of which are indigenous.

Share of population by Languages spoken

Spanish Only Spanish & Indigenous Languages Indigenous Laguages only Other

Nahuatl and Maya are two of the most frequently spoken indigenous languages. Most
indigenous languages are endangered due to a history of marginalisation of indigenous
populations, and many linguists fear that they may cease to be used within a few
decades. Legislative initiatives, such as the San Andréas Accords, have been
undertaken in recent years to safeguard indigenous communities, which account for
around 25 million of Mexico's 125 million total population, however the success of
such measures remains to be seen.

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Sports in Mexico
Football is a national pastime in Mexico, as well as the country's most popular sport.
Football is more popular in Mexico than tacos. Mexicans have always enjoyed
charreada (a type of rodeo), bullfighting, and basque pelota. Other sports, on the other
hand, have gained popularity in recent years. Apart from football, basketball, baseball,
rugby union, racquetball, and even ice hockey have a sizable fan base in Mexico.

Other Individual sports such as tennis, golf, taekwondo, track and field, and Mexico's
second most popular sport, boxing, are also popular in the country. However, no
discussion of spectator sports in Mexico is complete without discussing lucha libre. It is
professional wrestling in Mexico; however, some may say that it is more of a spectacle
than a sport.

The Mexican National Football Team

Many international athletic events, such as the World Cup (1970 and 1986) and
the Olympics, have been held in Mexico (1968). Eduardo Najera (basketball),
Cuauhtémoc Blanco (football), Hugo Sanchez (football), Lorena Ochoa (golf),
Fernando Valenzuela (baseball), and boxers Julio Cesar Chavez and Oscar De La
Hoya are just a few of the globally renowned athletes they have produced.

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Economic and business environment analysis
Population
With a population of about 126 million in 2020, Mexico is the 10th most populated
country in the world. It is the most populous Spanish-speaking country and the third-
most populous in the Americas after the United States and Brazil. Throughout most of
the 20th century Mexico's population was characterized by rapid growth. Although this
tendency has been reversed and average annual population growth over the last five
years was less than 1%, the demographic transition is still in progress, and Mexico still
has a large cohort of youths. The most populous city in the country is the capital,
Mexico City, with a population of 8.9 million (2016), and its metropolitan area is also
the most populated with 20.1 million (2010). Approximately 50% of the population
lives in one of the 55 large metropolitan areas in the country. In total, about 78.84% of
the population of the country lives in urban areas, meaning that only 21.16% live in
rural area.

Demographic censuses are performed by the Instituto Nacional de Estadística,

Geografía e Informatica. The National Population Council (CONAPO) is an institution
under the Ministry of Interior in charge of the analysis and research of population
dynamics. The National Commission for the Development of Indigenous Peoples (CDI),
also undertakes research and analysis of the sociodemographic and linguistic indicators
of the indigenous peoples.

Population Growth rate

In 1900, Mexico had a population of 13.6 million people. During a period known as the
"Mexican Miracle," the government invested in social schemes that increased life
expectancy. These initiatives resulted in a substantial growth in population between
1930 and 1980. The annual rate of population growth has decreased from 3.5 percent
in 1965 to 0.99 percent in 2005. Despite the fact that Mexico is now in its third phase
of demographic transition, nearly half of the population was under the age of 25 in
2009. Fertility rates have also declined, falling from 5.7 children per woman in 1976 to
2.2 children per woman in 2006. al programmes that reduced child mortality

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Mexico City had the highest average yearly population growth rate in the country, at
0.2 percent. Michoacán (-0.1%) had the lowest population growth rate during
the same period, while Quintana Roo (4.7%) and Baja California Sur (3.4%) had
the greatest, despite being two of the least populous states and the last to be added
to the

Union in the 1970s. Over the same period, Mexico City's average yearly net migration
rate was negative, the lowest of all political divisions in Mexico, whereas Quintana Roo
(2.7), Baja California (1.8), and Baja California Sur (1.8) had the greatest net migration
rates (1.6).

According to the Mexican government, the Mexican population will reach 123 million
by 2042, after which it will begin to decline gradually. The forecast is based on the
assumption that fertility will stabilize at 1.85 children per woman and that net
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emigration will remain high (slowly decreasing from 583,000 in 2005 to 393,000 in
2050).

Distribution of population (age groups)

The states and Mexico City that comprise the Mexican federation are referred to
collectively as "federal entities." In 2005, the five most populated federal entities were
the State of Mexico (14.4 million), Mexico City (8.7 million), Veracruz (7.1 million),
Jalisco (6.7 million), and Puebla (5.4 million), representing 40.7 percent of the national
population. According to the UN Urbanization Report, Mexico City, which is
coextensive with Mexico City, is the most populous city in the country, while Greater
Mexico City, which includes the adjacent municipalities that comprise a metropolitan
area, is estimated to be the second most populous in the world (after Tokyo).

In the second half of the twentieth century, intense population growth in the northern
states, particularly along the US-Mexican border, changed the country's demographic
profile, as did the 1967 US-Mexico maquiladora agreement, which allowed all products

manufactured in border cities to be imported duty-free into the US. However, with the

1994 implementation of NAFTA, which enables all items to be imported duty-free

regardless of their origin within Mexico, the non-border maquiladora proportion of
exports has grown while the border city share has declined.

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 Age group Male Female Total Percent

0-14 16 084 833 15 670 451 31 755 284 25,19

15-64 40 506 343 43 430 483 83 936 826 66,62

65+ 4 746 020 5 575 894 10 321 914 8,19

According to the World Population Prospects 2012 edition, the total population in
2010 was 117,886,000, up from only 28,296,000 in 1950. In 2010, 30 percent of the
population was under the age of 15, 64 percent were between the ages of 15 and 65,
and 6 percent were 65 or older.

Size of Settlements

Mexico has a number of medium to large cities. 38 cities count between 300,000 and 1
million people, and 16 cities have a population of more than one million, with two of
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them being megacities of more than 5 million people. According to projections, the
total number of cities (i.e. more than 15,000 inhabitants) will grow from 249 in 2010 to
747 in 2030[3].

Urbanisation in Mexico – Size of Settlements in Mexico | Mexico Infographics © GIZ

The 6 Largest Cities
This graphic shows the population size of Mexico’s six largest cities in 2015 and 2030,
respectively. With more than 20 million people, Mexico City is by far the largest urban
agglomeration in the country.

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Urbanisation in Mexico – Largest Cities in Mexico | Mexico Infographics © GIZ
Urbanisation in Mexico – Key Figures
A quarter of Mexico’s population lives in the country’s three largest cities: Mexico City,
Guadalajara, and Monterrey. In fact, the population size of Mexico City – more than 21
million – outnumbers that of many countries, such as Chile (18.7 million), Guatemala
(17.2 million), and the Netherlands (17 million). Traffic is a big issue in Mexico City:
congestion is estimated to cause costs amounting to 2.6 per cent of the country’s GDP,
and the city’s low-carbon metrobus is estimated to save 3 million US dollar in
healthcare cost. More than 70 per cent of Mexico’s water bodies are contaminated,
with many cities overexploiting groundwater supplies.

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Metropolitan areas

A metropolitan area in Mexico is defined to be the group of municipalities that heavily

interact with each other, usually around a core city.[76] In 2004, a joint effort between
CONAPO, INEGI and the Ministry of Social Development (SEDESOL) agreed to define
metropolitan areas as either:[76]
● the group of two or more municipalities in which a city with a population of at
least 50,000 is located whose urban area extends over the limit of the
municipality that originally contained the core city incorporating either
physically or under its area of direct influence other adjacent predominantly
urban municipalities all of which have a high degree of social and economic
integration or are relevant for urban politics and administration; or

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 ● a single municipality in which a city of a population of at least one million is
located and fully contained, (that is, it does not transcend the limits of a single
municipality); or
● a city with a population of at least 250,000 which forms a conurbation with
other cities in the United States of America.

In 2004 there were 55 metropolitan areas in Mexico, in which close to 53% of the
country's population lives. The most populous metropolitan area in Mexico is the
Metropolitan Area of the Valley of Mexico, or Greater Mexico City, which in 2005 had a
population of 19.23 million, or 19% of the nation's population. The next four largest
metropolitan areas in Mexico are Greater Guadalajara (4.1 million), Greater Monterrey
(3.7 million), Greater Puebla (2.1 million) and Greater Toluca (1.6 million),[77] whose
added population, along with Greater Mexico City, is equivalent to 30% of the nation's
population. Greater Mexico City was the fastest growing metropolitan area in the
country since the 1930s until the late 1980s. Since then, the country has slowly
become economically and demographically less centralized. From 2000 to 2005 the
average annual growth rate of Greater Mexico City was the lowest of the five largest
metropolitan areas, whereas the fastest growing metropolitan area was Puebla (2.0%)
followed by Monterrey (1.9%), Toluca (1.8%) and Guadalajara (1.8%).[77]

Per capita income level

● Mexico Annual Household Income per Capita reached 2,639.778 USD in Dec
2020, compared with the previous value of 3,086.630 USD in Dec 2018.
● Mexico Annual Household Income per Capita data is updated yearly, available
from Dec 2006 to Dec 2020, with an averaged value of 3,290.492 USD.
● The data reached an all-time high of 4,169.817 USD in Dec 2008 and a record
low of 2,639.778 USD in Dec 2020.
● CEIC calculates Annual Household Income per Capita from Quarterly Average
Household Income per Capita multiplied by 4 and converts it into USD. The
National Institute of Statistics and Geography provides Average Household

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 Income per Capita in local currency. Federal Reserve Board average market
exchange rate is used for currency conversions.
● In the latest reports, Retail Sales of Mexico grew 18.150 % YoY in Jun 2021.

Wealth distribution

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Mexico's wealth is unevenly distributed among its people where 10 percent of nation's
wealthiest have 42.2 percent of all income and 10 percent of the nation's poorest have
1.3 of the remaining income.[69] Carlos Slim, the richest man in Mexico and one of the
richest in the world, has a personal fortune equal to 4 to 6 percent of the country's
GDP. In spite of efforts by government officials during the past three administrations;
transition to globalization,[72] the NAFTA agreement;[73] Mexico has been unable to
create efficient public policies in order to compensate for the distortion of its market
and the poor distribution of national income.[

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Major exports and trading partners

The United States is Mexico’s most important trading partner, and U.S.-based
companies account for more than half of Mexico’s foreign investment. The United
States is also the source of between two-fifths and one-half of Mexican imports and
the destination for some four-fifths of the country’s exports. In contrast, trade with
Mexico represents only about one-tenth of total U.S. trade. Thus, Mexico is far more
dependent on the economy of its northern neighbour than the United States is on the
Mexican economy. Although both countries were members of NAFTA and belonged to
the World Trade Organization (WTO), both of which were founded on pledges of free
and open trade, Mexico has protested the deleterious effects of subsidized agricultural
exports from the United States, including corn, high-fructose corn syrup, and apples.
Under NAFTA there was mounting concern that these and other U.S. exports were
forcing millions of Mexican smallholders off their farms and into service-based or
industrial jobs in maquiladoras or in the United States. Meanwhile, many U.S. workers
were concerned about the loss of their jobs to maquiladoras. In November 2018
Mexico, the United States, and Canada entered into a new trade agreement, the
United States–Mexico–Canada Agreement (USMCA), which preserved much of NAFTA
while also introducing a number of significant changes

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Among Mexico’s major exports are machinery and transport equipment, steel,
electrical equipment, chemicals, food products, and petroleum and petroleum
products. About four-fifths of Mexico’s petroleum is exported to the United States,
which relies heavily on Mexico as one of its principal sources of oil. Mexico’s major
imports include machinery and transport equipment, chemicals, and consumer goods.

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The quantity and value of Mexican exports (especially nonpetroleum exports) grew
rapidly in the 1990s, largely in response to the government’s neoliberal economic
policies and to the creation of NAFTA. Since then, vast amounts of duty-free imports
and exports have flowed between the United States and Mexico within a narrow
border zone, especially on roads linking Tijuana, Mexicali, Juárez, Hermosillo,
Monterrey, and other major cities with the border.

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Government attitude to foreign investment and trends
Mexico is one of the emerging countries most open to foreign direct investment, the
world's ninth largest FDI recipient. In 2020, the inflows to Mexico was relatively
resilient compared to the rest of the region, as the country was already suffering a
recession in 2019. According to UNCTAD's 2021 World Investment Report, FDI inflows
fell to USD 29 billion in 2020 from USD 34 billion in the previous year (-15%).
Nevertheless, 60 per cent of inflows were generated during the first quarter of the
year, when reinvested earnings are usually recorded. The total stock of FDI is
estimated at USD 597 billion in 2020. Overall, FDI inflows were affected by rising
uncertainty over the government's economic agenda, its focus on fiscal austerity, the
slump in fixed investment and the contraction of GDP (-8.2%). These factors were
compounded by persistent concerns about the current administration's critical stance
on public-private partnerships (PPPs) and the role of the private sector in key
industries, together with the financial situation of the state-owned oil company Pemex
and the massive assistance it receives from the government (valued at USD 3.5 billion).
Besides, shifts in the five-year plan and in the policy of CFE, the state electricity
supplier, discouraged private investment in public utilities and contributed to a 67%
drop in FDI in electricity generation, transmission and distribution.
Investments mostly come from the United States, Spain, Canada and Germany. The
sectors receiving significant foreign investment are manufacturing (especially the
automobile industry), financial and insurance services, retail and wholesale trade, and
communication. Foreign investments are mostly concentrated in towns neighbouring
the U.S border (where many assembly factories are located), as well as in the capital.
Thanks to its robust tourism industry, the Yucatan Peninsula also receives substantial
foreign investment. FDI flows to the country fluctuate strongly depending on the
arrival and departure of large international groups.
As a member of USMCA, OECD, G20 and the Pacific Alliance, Mexico is very well
integrated into the world economic order, making it an attractive country for FDI.
Additionally, Mexico enjoys a strategic location, a a big domestic market, a wide variety
of natural resources, a relatively well qualified workforce and diversified economy.
However, in recent years, Mexico's competitiveness has suffered from the rise of
organised crime and lack of reforms in the energy sector and tax regulations.

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Corruption and administrative inefficiency have also been major issues and the
business climate continues to suffer from safety risks in the country. Mexico is ranked
60Th out of 190 in the World Bank's 2020 Doing Business ranking, losing six spots
compared to the previous year

Foreign Direct Investment 2018 2019 2020

FDI Inward Flow (million USD) 33,730 34,097 29,079
FDI Stock (million USD) 515,015 567,747 596,826
Number of Greenfield Investments* 601 641 302
Value of Greenfield Investments (million USD) 27,033 27,859 13,659

Ease of doing business, trade regulations

Mexico is ranked 60 among 190 economies in the ease of doing business, according to
the latest World Bank annual ratings. The rank of Mexico deteriorated to 60 in 2019
from 54 in 2018

The Ease of doing business index ranks countries against each other based on how the
regulatory environment is conducive to business operation stronger protections of

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property rights. Economies with a high rank (1 to 20) have simpler and more friendly
regulations for businesses.

Mexico Last Unit Reference Previous Highest Lowest

Ease of Doing 60.00 Dec/19 54.00 60.00 42.00

Business

Currency exchange rate

The Foreign Exchange Commission, made up of officials from the Ministry of Finance
and Banco de México, is responsible for foreign exchange policy in Mexico. At the end
of 1994, the Commission determined that the exchange rate would be determined by
market forces (floating exchange rate/free float regime). This section includes
indicators and data on operations most frequently used by exchange rate analysts.

After the devaluation of the peso in December 19th of 1994, Mexico adopted a floating
exchange rate. Although, at that time most people thought of this regime as transitory,
as time went by it has gained substantial support. The volatility of the peso has been
similar to that of other floating currencies

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Market Opportunity Analysis mexico
In 1994, Mexico joined a North American Free Trade Area. The underlying
agreement commonly referred to as the North American Free Trade Agreement
(NAFTA) was signed by the United States, Mexico and Canada amid heated
controversy in all three countries.

Looking back it can be argued that ultimately the free trade agreement has
brought economic benefits to all three countries.

In this article, I will focus on the economic miracle of Mexico and the reason why
multinationals and growing companies, especially those based in the United
States, cannot help but take a second look at a country that is so near and yet
so distant.

Introducing Mexico
Today Mexico represents an open economy and a regulatory climate that favors
private business and provides national treatment for U.S. and Canadian
suppliers under the NAFTA. Over the past decade, Mexico has made significant
progress towards macroeconomic stability. It has launched important structural
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reforms to further open the economy to trade and investment improving the
functioning of markets for goods and services as well as developing the
financial sector.

These efforts have yielded relatively good performance. After a strong 2006, the
output growth is expected to be close to potential, between three and one-half
and four percent over the next two years.

Mexico has substantial oil reserves, plentiful natural resources and raw
materials, and is one of the most competitive producers worldwide of cement,
glass, petrochemicals and metals. Inflation is low, life expectancy is high, and
climate and terrain is good. Ciudad Juarez has the same climate and terrain as
El Paso, and the beaches of Cancun look every bit as good as those in Fort
Myers.

Further, economists and analysts reason that Mexico is much better positioned
to weather an American recession than it was in 2000; inflation is low, the
public-sector deficit is close to zero, and the current-account deficit is much
smaller than it was six years ago.

Nor is growth just coming only from exports. Mexican banks are lending again,
and Mexicans are taking advantage of the availability of low-interest mortgages
and consumer loans. Little wonder Mexico is now considered the second most
competitive economy in the hemisphere (after Chile) and the most competitive
manufacturer in Latin America.

Mexico’s Value Proposition

Mexico’s value proposition is reflected in its relatively young work force,
privatization of the logistical system, rapidly growing domestic demand, and a
high level of consumer confidence. All these macro environmental factors are
critical to success in any country market.

A relatively young workforce of more than 30 million people has proved capable
of delivering world-class quality at substantially lower cost than in the advanced
industrialized economies. As a rapidly developing country with incredible
30
resources, Mexico has both a deep and technically educated labor base that is
comparable to China and India.

Since the privatization of the rail system 10 years ago, there have been
measureable advances in areas of rail connectivity, safety, security, technology
and rolling stock. Located next to the world’s strongest economy, Mexico is
connected by multimodal chains, both rail and highway, to enjoy the quickest
access to the U.S. border.

A favorable economic landscape in a rapidly growing domestic market of more

than 107 million people, with about half of under 20 years of age, has buoyed
credit access for larger segments of the population.

Luxury buys such as cars, consumer electronics, and even homes are coming
into the reach of a much broader spectrum. Mexican incomes have grown as
the economy has expanded. Between 1999 and 2005, the credit available to
buy cars increased 340%. The country's steadily growing middle class and its
demographic advantage over other major emerging markets bolster the platform
for growth.

In recent years, low interest rates and economic growth in emerging markets
has led to significant growth in consumer lending. In housing, the trend is
equally strong with some 750,000 new mortgages granted in 2006 versus
560,000 last year.

After five years of disappointing growth, consumer confidence is at near-record

highs, and the Mexican economy is expanding. Mexico is uniquely positioned to
continue on the path of strong and sustainable growth throwing up a myriad of
interesting investment opportunities over the short- through medium-term.

The peso and the stock market sailed through the 2006 presidential elections
with barely a blink. This economic stability provides a robust basis for faster
growth.

Mexico has moved beyond NAFTA to form trade agreements with Europe,
Israel and several Latin American and Asian Countries. Mexico can count on

31
several assets to boost productivity and output growth: a relatively young
population; geographical proximity to—and a free trade agreement with—the
largest market in the OECD; a solid macroeconomic policy framework; and a
healthy financial system.

Signs of Economic Growth

Signs of economic growth as discussed here are reflected in the transformation
of metropolitan cities, the development of the manufacturing base for
sophisticated products, the entry of global retailers, and heightened customer
confidence as reflected in the purchase of luxury and durable products.

In Ciudad Juárez, across the border from El Paso, industrial parks, shopping
malls and brand-new housing estates in faux-colonial style stretch out endlessly
into the Chihuahua desert. Monterrey, the industrial hub of Northeast Mexico,
has become a handsome North American city of swirling freeways and glass
office blocks, just the place to hold international conferences. Despite increasing
security concerns, traffic has continued to flow more or less smoothly across the
border. Look back a dozen years and Mexico has indeed achieved much.

Building jet airplanes has long been the domain of advanced industrial nations.
Now, Mexico is trying to join the club by hitching a ride with a Canadian
aerospace company. Montreal-based Bombardier Aerospace broke ground this
month in this central Mexican city on a massive complex to build wiring
harnesses, fuselages and flight controls. The company, best known for its Lear
jets and other executive jets, employs 450 workers here. It plans to have 1,200
by the end of 2008.

The gleaming new Wal-Mart Supercenter in this far-flung suburb of Mexico City
built on former site of a bull ring is emblematic of a wave of development rolling
across Mexico. Over the last two years, developers and retailers have spent at
least $1.5 billion to build shopping centers, and the pace is picking up.

Mexico produced a record two million cars and light trucks in 2006, exporting
three-fourths of them, while more than $4 billion in foreign investment poured
into the sector. The government anticipates much more manufacturing activity
32
will move to Mexico as Detroit's cash-strapped automakers head south for cost
savings.

Marketing Complexities and Challenges

Despite its many advantages, Mexico presents considerable challenges as a
market for exports. Global companies are finding out that marketing and brand
promotion strategies that work in developed mature markets do not always work
in developing regions.

Infrastructure Barriers

One ongoing problem is Mexico's creaky infrastructure, which is ranked worse

than that of China and India and is a source of frustration increasing the costs
for businesses, big and small. There is an urgent need for more efficient
sewage systems; cleaner, more extensive supplies of water; increased flows of
gas and electric power; and better roads and bigger airports.

Mexico's crucial competitive advantage in the United States over distant

countries such as China is lower transport costs. But that advantage diminishes
the further south you go. Most railways and roads were built in a radial pattern
with Mexico City as the spider in the centre of the web. Goods from the south
bound for the United States must pass through the bottleneck of Mexico City,
which climbs to 2,500 meters (8,200 feet) above sea level.

Restricted Competition

Mexico's corporate landscape is dominated by a handful of powerful companies,

and economists argue that the resulting absence of competition has kept prices
artificially high for consumers and reduced productivity and economic growth.

Competition in some key sectors such as postal services, natural gas, and
electricity is still hampered by unduly restrictive regulations. Moreover, there are
sectors where competition-enhancing regulations are not effective or
enforceable. Airports, railways and telecommunications are largely defined by
oligopolies that are prevalent.

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Counterfeit Products

As Mexico's economy continues to open up, the variety and sophistication of

pirated goods on Mexican streets has exploded. From border towns like
Nogales to the bustling streets of Mexico City, counterfeit electronics, clothing
and even liquor are flooding into markets and seeping across borders. Case in
point:

In Mexico, shoppers can find knockoff Arizona Cardinals jerseys for $25, less
than a third of what an NFL original costs. There are fake Sony televisions,
counterfeit Nike shoes, and even phony Johnnie Walker whiskey.

Counterfeit medicines are the antithesis of real medicines. Although they might
look like legitimate products, counterfeit medicines may contain no active
ingredients, incorrect active ingredients, inappropriate dosage or be
contaminated. Additionally, the packing materials used in these products are
usually improper.

The Business Software Alliance, which includes companies such as Apple Inc.,
Adobe Systems Inc., Microsoft and Symantec Corp., estimates that about 65%
of software programs sold in Mexico are illegal copies. The level of piracy in
Mexico robs the industry of $525 million annually.

Of every $10 that U.S. businesses lose through piracy, $5 is lost in four
countries: China, Russia, Italy and Mexico, according to the International
Intellectual Property Alliance. Mexico accounts for nine percent of those losses.

The International Intellectual Property Alliance estimates that trade losses due
to copyright piracy in Mexico totaled $1.3 billion in 2005, with pirated products
taking 65% of the total music market, 64% of the business software market,
62% of the motion picture market, and 73% of entertainment software market.

Under NAFTA and the WTO Agreement on Trade-Related Aspects of

Intellectual Property Rights (TRIPS), Mexico is obligated to implement certain
standards for the protection of intellectual property and procedures to address
infringement such as piracy and counterfeiting.

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Despite a fairly comprehensive set of IPR laws and an increase in the number
of seizures and arrests in 2003 and 2004, the extent of IPR violations in Mexico
remains dramatic. Monetary sanctions and penalties are minimal and generally
ineffective in deterring these illegal activities.

Competition from the Informal Sector

The informal economy is alive and well in Mexico. Vendors who are part of
Mexico's fast-growing informal economy hawk food, clothing, jewelry,
magazines, music CDs, DVDs and other consumer electronics and toiletries on
the doorsteps of bricks-and-mortar businesses.

While foreign marketers cannot use vendors as a distribution channels, their

presence definitely poses a competitive threat and affects the market potential
as well as market share for most simple as well as more sophisticated
technological products.

Marketing In Mexico
Marketing in Mexico is affected by a firm’s ability to estimate the market
potential; understand and define product quality and the need for: product
adaptation, effective pricing, viable identification and access to distribution
channels; and effective communication including developing long-term
relationships with suppliers, vendors, after-sale service providers, and end
users.

Market Potential

In Mexico gaining market share is largely dependent on the reputation of

companies and their brands. Luxury products or expensive high-tech goods can
be sold in Mexico, but their market is quite narrow and the prospective exporter
must consider whether the potential returns are worth the effort.

For example, the number of consumers who can afford imports remains
constrained by unequal income distribution, low wages, under-employment, and

35
limited advancement opportunities. Market size and share is further constrained
by the availability of counterfeit and fake products.

Product Quality and Brand Reputation

As is the case in shipping to any country, exporters must make sure their
products meet Mexican quality standards and labeling requirements. Labeling
must be developed to conform to Mexican requirements.

Mexico requires that all labels for imported processed products be in Spanish,
although they may be in another language as well. If the label is in two
languages, the Spanish print must be the same size as that of the other
language.

Packaging may have to be altered to accommodate climatic differences or local

preferences. Products must also conform to Mexican health, safety and
environmental standards.

Regulations and controls for imported products in Mexico sometimes change

without advance notice causing problems and delays for exporters. Mexico’s
labeling requirements also change frequently. Exporters should verify all
requirements before proceeding to market in Mexico. In most cases it will be
necessary to have special labels prepared for the Mexican market.

Pricing

Pricing of consumer products is subject to multiple international constraints, and

they all must be considered. Constraints such as anti-dumping legislation,
resale price maintenance legislation, price ceilings and price level reviews,
international transportation costs, middlemen in elongated international
channels of distribution, and multinational account servicing must be addressed.

In the case of direct exports to Mexico, cost calculations will include the costs of
production in home country and the additional costs of delivering the goods to
Mexico including packing, transportation, export documentation, insurance,

36
tariffs, customs fees if they apply, licenses and permits, as well as the costs of
distribution, marketing and sales in Mexico.

Retailing

One important point to keep in mind is that the retailing market is very
fragmented due to the diversity of consumers with different purchasing power
capabilities. Modern specialized formats such as hypermarkets, supermarkets
and department stores are favored by middle to upper-income consumers.
Traditional formats, such as small independent stores, are favored by middle
and lower-income levels.

Informal establishments, such as street vendors and open public markets, are
estimated to account for 50% of the total retail market and are mostly favored by
lower-income consumers. Traditional retail stores such as grocery stores and
mom-'n'-pop shops, although a large market segment, are not yet viable options
for imported products because of their comparatively small size and limited
refrigeration. Operators often have only limited knowledge of imports, restricting
their outlets' potential for U.S. products.

For foreign marketers, convenience stores represent the fastest-growing

segment in Mexico. These outlets tend to be located in large and medium-size
cities and are usually in middle-income neighborhoods and business districts.
Convenience stores typically offer longer hours and good service. Depending on
the nature of the product, these channels may offer a viable opportunity for
foreign supplies.

Communications

Marketing communications include but are not limited to advertising, public

relations, and tradeshow participation.

Advertising and public relations media options include television, print and radio,
which are all well developed in Mexico. For companies that want to reach a
broad, national consumer audience, television is favored over newspapers and
other print media.

37
More than 94% of Mexican households have a TV set, and television captures
about three-quarters of the Mexican advertising market. Televisa and TV Azteca
have 60% and 40% market shares respectively. Cable TV reaches about 12%
of homes (the wealthiest) and is increasingly a niche avenue for TV advertising.

Internet publicity and advertising has not been as successful as was expected.
Although the Internet advertising construct seeks to reach the targeted
audience, Mexican companies have not yet aggressively invested in this area
as they are not convinced that Internet advertising works.

According to AMIPCI only 10% of the Mexican firms use the Internet for
advertising purposes, and those that have are focused in the pharmaceutical,
household, education and tourism industry sectors.

Promotional materials can be used in Mexico, but all material should be

modified for the Mexican market. Ideally, they should be written in Spanish as
opposed to simply being a translation of an English or French original. Exporters
should not rely entirely on what they use at home.

There are numerous trade shows held regularly throughout the year in Mexico.
Exporters must attend such a show to gauge what the competition is doing or
exhibit at such a show as part of its promotional activity.

Trade fairs are an effective way of acquiring familiarity with the Mexican market
or to promote a product with prospective Mexican buyers. Foreign suppliers or
marketers should attend or participate in trade shows and missions to find
potential representatives—importers, sales agents, distributors or buyers.

Importance of Relationships

In an economy that is changing as quickly as Mexico's, a successful export

drive will not in itself assure a company a long-term position. For a company
that thinks beyond the immediate sale, an ongoing relationship with a Mexican
partner and a local presence can provide a window for tracking market trends
and adapting to emerging demands.

38
In developing business relationships, language can be a significant barrier to
doing business in Mexico. It is not so much a question of rendering words
exactly but of capturing nuances and interpreting gestures. Companies doing
business in Mexico should be careful to move beyond simple words to
understanding the spirit in which the transaction is being conducted.

Final words
Companies that succeed in Mexico are generally those that proceed cautiously,
take the time to thoroughly assess the market, and define an effective marketing
plan. The efficiency, quality of product, pricing, and communications are all very
important factors for success in this market.

Being aware of cultural factors including corruption, counterfeiting, restrictions in

entry into certain industry sectors, and infrastructure barriers will help the
international marketers in making prudent business decisions.

Market entry mode

Mexico is one of the two largest countries in Central and Latin America by also
being at the forefront of growing economies in the region. With more than 120
million inhabitants it is a market, you should not overlook.

Point One International has a multilingual team of experienced and highly-

motivated experts working with the Mexican market. Our team knows the ins
and outs of how starting a business in Mexico works or what the best ways of
doing business in Mexico are. By preparing a concrete, detailed business
plan for market entry to Mexico we enable any businesses, operating in
various fields, to succeed in a new market. Point One International encourages
clients and works with a sharp, no-nonsense type attitude, so making
a strategy for your company is going to be swift and effective.

Furthermore, the solutions for starting a business in Mexico are best when
you truly have set out particular goals or objectives. Knowing the market and
understanding nuanced complexities is also essential, so if you seek to find
most price efficient ways to start doing business in Mexico – Point One
International is the go-to company. People, places, and platforms or P-Cubed, is
a system we developed and use to increase the earnings and profits of your
company and help you reap the benefits of carrying out market entry to Mexico.

39
A growing market and economy with over 120 million potential consumers make
Mexico one of the hottest destinations to expand to. Businesses and
organizations have trust in us to prepare and execute complexed business
plans and strategies for immense growth and expansion in the future. Yet the
future is now and we will not waste any time in getting down to business. The
biggest price you pay is the investments you overlook and since entering the
Mexican market is a sure home run, let us work together to achieve sustainable
growth and strengthen your newly planted footing in Mexico

There are numerous benefits of manufacturing in Mexico, from lowering your

production costs to accessing Mexico and its trade partners’ markets.

But as with any new business venture, it’s important to create a solid plan before taking
action. Even if you’ve offshored manufacturing in the past, Mexican business
culture and laws can present different growth opportunities, as well as challenges.
While some companies find success in developing subsidiary operations from scratch,
others opt to work with trusted partners to facilitate their market entry.

In this short guide, we’ll cover four potential strategies for market entry in Mexico and
the criteria you should use to decide which is best for your business.

Preliminary Steps
Before entering the market in Mexico, it’s vital to acquaint yourself with the local
landscape. After one or more business trips, you’ll have a stronger sense of the best
market entry strategy for Mexico, given your business’ unique needs.

Take the following steps:

• Assess your needs – What is your priority for entering the market—
manufacturing at the lowest cost possible, having broad control over
quality and costs, or lowering your legal liability? Consider these, as
well as your ideal budget and timeline, before you begin further
research.
• Visit the country – Both the Northern border region and the central
“Bajio” region have extensive infrastructure that can facilitate
manufacturing, fulfillment, and distribution. Research both regions’
suitability for your industry sector and pay visits to several cities
throughout your chosen region. Look for the one with the right
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 transportation logistics and workforce availability. Need more than
one manufacturing site? Some companies choose to operate in more
than one region when going through manufacturing site selection.
• Form relationships – The International Trade Association affirms that
good relationships and open lines of communication are critical for
successful business dealings in Mexico. While you can eventually keep
in touch via email and WhatsApp, there’s no substitute for face-to-
face interaction as you get acquainted with potential international
business partners.

Once you’ve taken these steps, consider which of the following four strategies is best for
you.

#1 Form a Subsidiary Operation

In some cases, it makes sense to build a manufacturing facility from the ground up.
While you establish your operation, prepare for all aspects of doing business in Mexico.

This market entry strategy includes the following steps:

• Site selection – Choose the right city for doing business and negotiate
favorable terms on the lease or purchase a suitable commercial space.
• Hire security – If there is no adequate security in your industrial park,
hire security staff or contract security work to a third-party supplier.
• Procure materials – Understand how moving to Mexico impacts your
supply chain and develop a strategy for procuring inputs in line with
your production calendar. Establish relationships with suppliers.
• Hire staff – Recruit managers, engineers, payroll staff, and Mexican
laborers who can quickly learn your production processes. Understand
and comply with Mexico’s labor laws and regulations. Prepare for
handling payroll procedures and tax withholding.
• Ensure health and safety – Maintain health, safety, and environmental
policies in Mexico. Have a qualified agent available for government
inspections.
• Prepare to import and export – Arrange for the transport and
distribution of your goods to ports. Understand laws around Mexican
imports and exports, establish shipping procedures, and keep records.

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As you can see, this is a complex and multi-step process. If you choose to form your own
operation from scratch, you and your leadership team will need to develop fluency in
Mexico’s laws and develop a rapport with vendors and partners.

Even after completing these initial tasks and hiring tens or hundreds of employees, it’s
important to self-audit to ensure you stay compliant. In addition, you’ll need
contingency plans for dealing with employee turnover or any other issues that arise.

Pros and Cons

There are several potential benefits to establishing your own operation. Most notably,
you’ll have total control over your business operations. You will also safeguard your
business by understanding intellectual property rights.

However, there are some disadvantages, especially for small and midsize businesses.
They include:

• Significant upfront investment

• Long entry ramp
• 16% VAT tax on goods exported to the U.S.
• Legal liability for your operations in Mexico

As a smaller business, you may not have the resources to invest in a risky venture.

But even as a large business owner, you may find it’s easier to bypass the complexities
of establishing your own manufacturing operation by using one of the methods below.

#2 Find a Partner
As you look at the steps involved in creating your facility, it’s reasonable to want to
outsource several of them to someone with more expertise in Mexico.

Forming a joint venture with an established Mexican company can help lower your
costs and your risk. A partner who is well-versed in importing and exporting from the
country can help deal with unfamiliar issues and logistics.

First, research your potential partner and examine their record in doing business with
suppliers, clients, and the government.

Once you’ve found a suitable partner, keep the following in mind:

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 • It’s inevitable that you have different business goals than your partner.
Ideally, your goals align to some extent—your investment capital and
technological knowledge should complement their local connections
and expertise. However, there will inevitably be some areas of
divergence.
• Therefore, it’s essential to clearly outline responsibilities. For example,
who will handle payroll administration and procedures? If there is an
error, who is financially and legally liable?
• Lay out a process for settling disputes in advance.

Pros and Cons

The positives to a joint venture include a shortened market entry runway and lower
upfront opportunity costs. The negatives include the need to share profits and tax
liability. In addition, you may be concerned about the security of your intellectual
property.

#3 Contract a Manufacturer
It’s sometimes preferable to avoid the startup costs of establishing a business presence
in the Mexico market. In this case, you might choose to outsource your manufacturing
to a third-party contractor.

To go this route, take the following steps:

• Work with an agent or partner with significant knowledge of the local

market to research potential contractors
• Create clear contracts in line with Mexico’s laws and ordinances
• Create a game plan for any issues with product quality or timelines

Pros and Cons

This method of market entry has numerous positives.

• By contracting with an existing manufacturer, you significantly limit

startup costs and can begin manufacturing in an incredibly short
timeline.
• Without a legal presence in Mexico, you limit your legal and tax
liability.

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 • Once you’re manufacturing in Mexico, you could easily shift
fulfillment and distribution there, too. By utilizing a Mexico
fulfillment center, you could lower your distribution channel costs and
access international markets in countries that have preferential trade
agreements with Mexico.

At the same time, there are some potential downsides to contracting out your
manufacturing.

You’ll have significantly less control over production, including:

• Quality
• Delivery timeline
• Production costs

While you can outline procedures for quality and shipping issues in your contract, you
could still be left without the products you need on the timeline you need.

You also risk the security of your intellectual property.

#4 Shelter Services
A new or joint venture can expose you to legal liability in Mexico. In contrast, doing
business with a shelter services company eliminates your liability while speeding up
your timeline to market entry.

A shelter company work as follows:

• Conduct business under the “shelter” of an existing Mexican

corporation rather than taking on legal liability
• Maintain a brand presence in Mexico, including company signage at
your manufacturing site
• Take advantage of the shelter company’s existing networks and
expertise in the Mexican market
• Work closely with the shelter service to set up manufacturing
processes including sourcing, timetables, quality control to your
specifications
• Outsource compliance, human resources management, and
administration to the shelter service
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Pros and Cons
Many companies consider shelter services a “best of both worlds” solution that
combines the control you’d get when establishing your own factory with the diminished
risk of contracting. This is why it’s among the most popular choices for companies
moving their manufacturing processes to Mexico.

Availability of skilled labor

Labor in Mexico draws from a young population with 42% of its 117 million inhabitants
between the ages of 20 and 49 years old.

The workforce is diverse, ranging from production labor (direct labor) to highly skilled
professionals (indirect labor), which lends itself well to a variety of manufacturing in
Mexico. Also, the maquiladora’s sixty-year history of manufacturing in Mexico has
resulted in a well-trained labor force in Mexico, which includes a multigenerational
pool of manufacturing talent throughout the country and in almost every industry.

Direct Labor in Mexico

Unskilled direct labor in Mexico is typically defined as those employees who do not
have a high level of education and/or do not require a lot of training to successfully
achieve their daily tasks. Generally speaking, these employees have no more than a
high school education and are not bilingual.

Semiskilled direct labor in Mexico differs from unskilled in that the employee typically
has a minimum of 2-3 years of experience in a specific type of work. Another scenario
may be an employee without a lot of experience but with natural skill sets that enable
them to be trained for a higher level of work than simple tasks. Sometimes this level of
employee will be fully or partially bilingual, as well. Because semiskilled employees in
Mexico are typically paid about 20-30% more than unskilled, their level of turnover is
generally lower.

Skilled direct labor for manufacturing in Mexico is becoming much more common due
to the sophistication of the products being manufactured. Skilled direct labor can be
found in many of the maquiladoras in Mexico , especially those servicing the
aerospace, medical device and metal mechanic industries. Generally speaking, skilled
labor has at least 5 years of experience in a specialized line of work. Some examples

45
might be a welder for engineered metal products, a cleanroom CNC operator or even a
specialty leather-sewing operator. It is not uncommon for a skilled laborer in Mexico to
make double the salary of their unskilled counterpart.

Indirect Labor in Mexico

Facility management, including plant managers, operations managers, production
managers and QC managers make up a large portion of the indirect labor force in
Mexico. These highly skilled and well-experienced individuals are increasingly sought
after in the Mexican labor force.

Demand for engineers in Mexico, including manufacturing, electrical, process and

mechanical, is rapidly growing. The aerospace, medical device, electronics, automotive,
consumer product and metal mechanics industries are increasingly expanding the
scope of their Mexico manufacturing operations, thus requiring a larger pool of
engineers to run their facilities. In fact, Mexico graduated more engineers in 2017 than
the United States.

Supervisors make up the remainder of indirect labor required in virtually every

manufacturing facility in Mexico. Unlike managers in Mexico, supervisors typically
receive salaries below their U.S. counterparts, depending on their experience and
seniority. For more information on Mexico labor rates and other services in Mexico,
get in touch with us.

Labor costs
Mexico has long offered competitive labor costs, especially compared to the U.S., but
what’s remarkable is that labor rates in Mexico have stayed relatively low while the
quality and complexity of the products manufactured there has increased. Plus,
because Mexico has a 48-hour work week (before requiring overtime pay), productivity
is generally higher than in the U.S.

Average Wage in Mexico

46
The average base salary for an entry level manufacturing worker in Mexico is
approximately $3.50 (USD) per hour, well below the average federal U.S. minimum
wage of $7.25 (USD) per hour. Additionally, for skilled workers like machinists and
welders, Mexico is approximately $6 - 7 (USD) per hour, compared to an average of
$16 – 18 (USD) per hour for similar positions in the U.S. Because Mexico’s average cost
of living is lower than the U.S., it’s a win-win all around.

Labor Rates in Mexico Mean Lower Operating Expenses

The cost savings keep adding up when you figure in the lower expenses for rent and
utilities. Undeveloped sites are available throughout Mexico, but because
manufacturing has been such a major part of the economy for so long, there’s more
than enough industrial facilities to go around. Most of these are Class A facilities that
are in gated industrial parks or secured, stand-alone buildings.

Leasing rates range from $0.35/square foot to $0.49/square foot, depending on the
class of the building (Class A, B, and C are available) and its location.

47
Legal system: Protection of intellectual property rights

Mexico is a civil law country, meaning that the Mexican system does not rely on stare
decisis or considers case law as binding precedent. As a result, the Mexican intellectual
property statues are significantly more detailed than their US compliments. Mexican
law recognizes only intellectual property that has industrial uses. For example, Mexico
recognizes and protects patents, utility models, industrial design, trademark, trade
secret, slogan, trade name, and origin identification.

Any invention that is new and is applicable to an industrial application may be

protected with a patent (so long as the Inventive Step Requirement is met). The patent
must enable something to be transformed for the benefit of man towards an
immediate satisfaction of a specific need. In other words, ideas cannot be patented,
instead processes that result in a final use can be patented and protected.

Mexican law also identifies several specific types of inventions that are not patentable
subject matter. These include natural items, computer programs, information
presentation processes, artistic or literary work, medical procedures, juxtapositions
and theoretical and scientific theories. Whether or not a product or process can be
patented under Mexican law can be a difficult analysis, and it is generally good practice
to retain a Mexican intellectual property lawyer to assist in the patent analysis and
process.

The level of patent protection under Mexican law is, however, limited. A patent may be
used by anyone from the private or educational sectors who perform experimental
activities of testing or teaching, with noncommercial goals.

Trade Secrets
Trade secrets are also protected under Mexican law. To be a trade secret, the
information must be "in reference to the nature, characteristics, or purposes of the
products; to the methods or processes of production, or to the means or forms of
distribution or marketing or products, or the rendering of services." As a result,

48
information that is openly available, obvious to experts in the field or required to be
disclosed cannot be considered trade secrets.

Like Patents and Trade Secrets, Trademarks are also protectable under Mexican law.
Trademarks can be protected if they are used in business. Names, images, logos, or
other symbols that distinguish products are "trademarkable". A trademark, however,
may be rejected if the mark sought to be protected is comprised of common, technical,
or generic words, marks that lack originality, isolated latters, numbers, or colors,
frivolous variations in common word spellings, marks that copy or mimic other marks
or organizations, geographic names, titles of existing art (if there is no consent by the
creator), and anything that may deceive the public. It is always a good idea to retain
counsel from a Mexican intellectual property firm to assist in the registration of the
Trademark to ensure that the mark is properly presented so it may be approved.

Enforcement of contracts

Responsibility for intellectual property rights (IPR) protection is spread across several
government agencies. The Office of the Attorney General (previously known as the
PGR, now called the Fiscalía General de la República or FGR) oversees a specialized
unit, UIDAI (Unidad Especializada en Investigación de Delitos contra los Derechos de
Autor y la Propiedad Industrial), that prosecutes IPR crimes. The Mexican Institute of
Industrial Property (Instituto Mexicano de la Propiedad Industrial or IMPI) administers
patent and trademark registrations and handles administrative enforcement cases
involving allegations of IPR infringement. The National Institute of Copyright (Instituto
Nacional del Derecho de Autor or INDAUTOR) administers copyright registrations and
mediates certain types of copyright disputes, while the Federal Commission for the
Protection Against Sanitary Risks (Comisión Federal para la Protección contra Riesgos
Sanitarios or COFEPRIS) regulates pharmaceuticals, medical devices and processed
foods. The Mexican Customs Service (Aduanas, part of the Servicio de Administración
Tributaria or SAT) ensures that illegal goods do not cross Mexico’s borders.

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Mexico faces widespread commercial-scale infringement that results in significant
losses to Mexican, U.S., and other IPR owners. Obstacles to improving IPR enforcement
in Mexico include legislative loopholes, lack of coordination between federal, state,
and municipal authorities, reduced budget and resources for IP agencies, cumbersome
judicial processes, and pervasive presence and use of pirated and counterfeit goods in
the informal marketplace. In addition, Trans-National Criminal Organizations (TCOs),
which control the piracy and counterfeiting markets in parts of Mexico, continue to
impede federal government efforts to improve IPR enforcement. TCO involvement has
further illustrated the link between IPR crimes and illicit trafficking of other
contraband, including arms and drugs. Mexico continues to rely on arrests and
prosecutions of counterfeiters in flagranti, as opposed to mounting proactive
investigations that seek to dismantle pirating and counterfeiting networks. Online and
broadcast piracy is a serious problem, and U.S. brand owners also face bad-faith
trademark registrations, making it important for companies to register their
trademarks early. Moreover, rights holders have expressed concern about the length
of administrative and judicial patent and trademark infringement proceedings and the
persistence of continuing infringement while cases remain pending.

Despite these shortcomings, during 2020, Mexico undertook significant legislative

reforms to implement its intellectual property commitments under the United States-
Mexico-Canada Agreement (USMCA), with changes to its Copyright Law (Ley Federal
del Derecho de Autor), Criminal Code (Código Penal Federal), and the passage of a new
Industrial Property Act (Ley Federal de Protección a la Propiedad Industrial). These
reforms included improvements in laws addressing protection against the
circumvention of technological protection measures and rights management
information, Internet-service provider liability, satellite and cable signal theft and
penalties for aiding or abetting these activities, unauthorized camcording of movies,
and transparency with respect to new geographical indications (GIs).

Guiding Principles for Effective Protection and Enforcement of Your IPR

In any foreign market, companies should consider several general principles for
effective protection of their intellectual property. For general background and more
information, please review our article on Protecting Intellectual Property and our IPR
protection website Stopfakes.gov.
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Several general principles are important for effective management of IPR in Mexico.
First, it is important to have an overall strategy to protect your rights. Second, IPR is
protected differently in Mexico than in the United States, so you need to understand
the specific procedures for Mexico. Third, rights must be registered and enforced in
Mexico under national legislation. Your U.S. trademarks and patents will not protect
you in Mexico. On the other hand, signatories of the Berne Convention for the
Protection of Literary and Artistic Works provide protection to each other’s nationals’
copyrighted works and provide that nationals of all signatory countries be provided
with the same rights as Mexicans.

Registration of patents and trademarks is on a first-in-time, first-in-right basis, so you

should consider applying for trademark and patent protection even before selling your
products or services in the Mexican market. It is vital that companies understand that
intellectual property is primarily a private right and that the U.S. Government generally
cannot enforce rights for private individuals in Mexico. It is the responsibility of the
rights holders to register, protect, and enforce their rights, and where relevant, retain
their own counsel and advisors. Companies may wish to seek advice from local
attorneys or IP consultants who are experts in Mexican law. The U.S. Commercial
Service in Mexico maintains a list of local attorneys, but assumes no responsibility for
the professional ability or integrity of the providers listed.

While the U.S. Government stands ready to assist, there is little we can do if rights
holders have not taken these fundamental steps necessary to secure and enforce their
IP in a timely fashion. Moreover, in many countries, rights holders who delay enforcing
their rights on a mistaken belief that the U.S. Government can provide a political
resolution to a legal problem may find that their rights have been eroded or abrogated
due to legal doctrines such as statutes of limitations, laches, estoppel, or unreasonable
delay in prosecuting a lawsuit. In no instance should U.S. Government advice be a
substitute for the obligation of a rights holder to promptly pursue its case.

It is always advisable to conduct due diligence on potential partners. Negotiate with a

full understanding of the position of your partner and give your partner clear
incentives to honor the contract. A good partner is an important ally in protecting IP
rights. Consider carefully, however, whether to permit your partner to register your IP
rights on your behalf. Doing so may create a risk that your partner will list itself as the
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IP owner and fail to transfer the rights should the partnership end. Projects and sales in
Mexico require constant attention. Work with legal counsel familiar with Mexican laws
to create a solid contract that includes non-compete clauses, and confidentiality/non-
disclosure provisions.

It is also recommended that small and medium-sized companies understand the

importance of working together with trade associations and organizations to support
efforts to protect IP and stop counterfeiting. There are a number of these
organizations, both Mexico- and U.S.-based. These include:

● U.S. Chamber of Commerce

● American Chamber of Commerce in Mexico (AmCham)

● National Association of Manufacturers (NAM)

● International Intellectual Property Alliance (IIPA)

● International Trademark Association (INTA)

● Coalition Against Counterfeiting and Piracy

● International Anti-Counterfeiting Coalition (IACC)

● Pharmaceutical Research and Manufacturers of America (PhRMA)

● Biotechnology Industry Organization (BIO)

● Institute for the Protection of Intellectual Property and Legal Commerce (IPPIC)

● Mexican Association for the Protection of Intellectual Property (AMPPI)

● National Association of Corporate Lawyers (ANADE)

● Mexican Association of Research Pharmaceutical Industries (AMIIF)

● Mexican Association of Phonogram Producers (AMPROFON)

● Motion Picture Association of America (MPAA)

● Business Software Alliance (BSA)

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IP Resources
A wealth of information on protecting IP is freely available to U.S. rights holders. Some
excellent resources for companies regarding intellectual property include the
following:

● For information about patent, trademark, or copyright issues—including

enforcement issues in the United States and other countries—call the
Department of Commerce’s STOP! Hotline at +1-866-999-HALT or visit
www.STOPfakes.gov.

● For more information about registering trademarks and patents (both in the
United States as well as in foreign countries), contact the U.S. Patent and
Trademark Office (USPTO) at +1-800-786-9199 or visit www.uspto.gov.

● For more information about registering your copyright in the United States,
contact the U.S. Copyright Office at +1-202-707-5959 or visit
www.copyright.gov.

● For more information about how to evaluate, protect, and enforce intellectual
property rights and how these rights may be important for businesses, please
visit the Resources section of the STOPfakes website at
https://www.stopfakes.gov/welcome.

● For information on obtaining and enforcing intellectual property rights and

market-specific IP Toolkits visit STOPfakes IPR Toolkits. The toolkits contain
detailed information on protecting and enforcing IP in specific markets and
contain contact information for local IPR offices abroad and U.S. Government
officials available to assist small and medium-sized enterprises (SMEs). Also see
the Mexico IP Snapshot.

● An English-language overview of Mexico’s IPR regime can be found on the WIPO

website.

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● Although a firm or individual may apply for example, for a patent or trademark
directly, most foreign firms hire local law firms specializing in intellectual
property. The U.S. Commercial Service’s Business Service Provider program has a
partial list of local lawyers.

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