Franchising to Mexico

(Last updated: 20 May 2008)

Trends and opportunities

The market

Franchises are developing very fast in Mexico. In 2005, the experience in the country confirms that franchises constitute a very useful option for acquiring capital in a short time as well as security.

Against popular belief, today more than 68 per cent of franchises in Mexico are Mexican enterprises and 32 per cent are foreign, these predominately come from the US. Both statistics show that there is still much work to do in Mexico and to continue with the effort to expand franchising here. More businesses are franchising, and an increasing number people are choosing to buy franchises. Franchising sales, infrastructure, construction and salaries are about $55 billion dollars per year. This means this sector is becoming one of the most important in the country. Currently there are 50,000 franchises’ sale points and 500 franchisees.

Worldwide, Mexico ranks 11th in franchise development, with the overall number of franchises growing rapidly due to the following reasons:

• The size and diversity of the Mexican market.
• An open commercial system and dynamic international commercial activity through the proliferation of Free Trade Agreements.
• Increasing stability of the exchange rate over the last six years.
• The improvement of the legal framework, which reduces excessive regulations and creates a good level of intellectual property protection.
• Government economic policies aimed at helping small entrepreneurs.

Opportunities

According to the Mexican Franchise Association, 83 per cent of franchised businesses in Mexico are in three major locations: Mexico City (44 per cent), Monterrey (21 per cent) and Guadalajara (18 per cent). Countries represented by franchised businesses in Mexico include USA, Canada, Spain, Brazil, Italy, France, Australia and the UK.

There are new franchises appearing daily, with offerings ranging from chocolate and sweets to rotisserie chicken and ice cream novelties. The government program is known as PyMES which, in English, means small and medium-size companies. This program is predicting that the Mexican franchise sector will grow 25-30 per cent annually throughout the financing support program developed by the Ministry. The goal is that in 2012, there will be 2000 franchisees established with 150,000 sale points.

According to industry sources, the services sector accounts for 24 per cent of the market; the consumer food service holds second place within the franchising industry with 23 per cent, and in third place retail stands with 21 per cent.

Additional areas of franchise development are early child development, education, babysitting, cleaning and repair services. Another sector in huge demand of new services is businesses for mature adults, such as entertainment, care, or places for recreation and medical services. A surprising number of franchises are now dedicated to offering cleaning services as well as, laundries, dry cleaners and tailoring shops.

Tariffs, regulations and customs

As previously mentioned, franchises have not been in Mexico for a long time, and because of that, laws and regulations are still at an early stage. Although the Industrial Property Law regulates franchises, the Mexican Congress has modified legislation to give more legality and security to franchises. This modification benefits both franchisees and franchisors. This regulation is a big step, because it is creating a franchise culture supported by laws.

Specific tariffs and customs duties will vary from franchise to franchise. Australia, under its MFN classification with Mexico, does face higher import duties than countries that Mexico has a free trade agreement (FTA) with. Mexico has 46 FTAs in place, including North America, Europe and Japan.

Australian franchises should confirm the applicable taxes/duties for ingredients and products that may be required in their franchise and also may need to consider sourcing/supplying such products from a FTA member country, so as to make the franchise concept more affordable and thus generate greater interest from local companies.

Marketing your products and services

Market entry

Australian franchises are already present in the Mexican market. There are various ways to approach the market. The most common approaches include:

• Hiring a franchise consulting firm to identify potential master franchisees, conduct market investigations, and identify all regulatory and legal issues and hurdles. 
• Referral to a major company already in the franchise sector, which may be interested in adding another franchise concept to their family. Typically such companies possess legal and financial experts to assist identify regulatory/legal issues and hurdles.
• Approaching the Mexican Franchise Association for assistance (Austrade has contact details). 
• Advertising in the local press for interested parties and then visiting the market to meet with them and selecting a master franchisee. In addition, meeting with other professionals (eg. lawyers, consultants, property managers, etc.) to gain an understanding of the market is very important for obtaining valuable information and understanding the law framework. 
• Participating in a major trade shows in the US and/or Mexico. Many Mexicans looking for new trends regularly visit major trade shows in the US.
• Participation in a local show and/or the creation of your own event is also a suitable market entry strategy and not overly expensive.

Links and industry contacts

Franchise-related resources

Mexican Franchise Association - www.franquiciasdemexico.org
Insurgentes Sur 1783, Desp. 202 2do Piso
Col. Guadalupe Inn, Del. Álvaro Obregón
C.P. 01020, D.F., México
Tel: +52 55 5661 2040
Fax: +52 55 5661 2800

Contact details

The Australian Trade Commission (Austrade) is the Australian Government’s trade and investment development agency, operating as a statutory agency within the Foreign Affairs and Trade portfolio.

Austrade assists Australian businesses contribute to national prosperity by succeeding in trade and investment, internationally, and promoting and supporting productive foreign investment into Australia.

Austrade:

• Delivers services that assist Australian businesses initiate, sustain and grow trade and outward investment.
• Promotes Australia as an inward investment destination and, with the States and Territories, supports the inflow of productive foreign direct investment.
• Administers the Export Market Development Grants scheme.
• Undertakes initiatives designed to improve community awareness of, and commitment to, international trade and investment.
• Provides advice to the Australian Government on its trade and investment development activities.
• Delivers consular, passport and other government services in designated overseas locations.

A list of Austrade offices (in alphabetical order of country) is available.

More information

For further information please contact Austrade on 13 28 78 or email info@austrade.gov.au

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