Current business situation
Mexico is widely projected to be a top 10 economy within this decade. Unlike many other large emerging markets, Mexico is - and is likely to remain - politically stable and its economy essentially open. Its fiscal and macroeconomic management have generally been prudent, allowing it to sustain reasonably strong growth rates for a middle-income economy. Its liberal economic settings are not under threat from populist opposition. With a reasonably young population of 128 million, its demographics are positive.
Mexico has embraced reform with commendable commitment: the Organisation for Economic Co-operation and Development (OECD) rates its reform agenda the most extensive of its membership. It has 13 trade agreements connecting it with 46 countries. This will soon include Australia as a result of the recent signing of the Transpacific Partnership (TPP). According to HSBC, Mexico will be the 6th largest trading nation in the world by 2050.
Underlying all this is a cost structure that is the third lowest among the top 25 exporting nations of the world. As companies seek to nearshore operations to the world’s largest economy, the United States, Mexico is a favourite for foreign direct investment attraction. Its relationship with the US turns over at US$1 million a minute. It is responsible for two-thirds of the region’s advanced manufactured exports and is a world-class producer of minerals, petroleum and agricultural products. More than 100,000 engineers graduate each year in Mexico. Its US$90 billion health sector is the second largest in the region. Mexico is planning to spend US$500 billion on infrastructure.
The recent market entry of a tranche of Australian companies has been a watershed moment for the relationship, increasing total Australian investment in Mexico to more than A$5 billion. Australian boardrooms have found some comfort from this development; it has allayed concerns about the complexity of the market.
Australian firms have increasingly paid attention to the transformation in Mexico’s role as a global and regional value chain hub and the trade and investment opportunities this affords. The prospect and subsequent signing of the Tran Pacific Partnership Agreement (TPP) has been a substantial trigger for increased interest, but not the only one.
Mexico’s approach to business is increasingly sophisticated. This is a reflection of Mexico’s extensive agenda for economic reform, its maturing trade relationships (especially as a result of NAFTA, but also the EU and the Pacific Alliance) and the general rise in the education attainment levels.
Australian companies should not underestimate the market. The skills and technology intensity of some industries – for example, manufacturing – is among the highest anywhere in the world. It not only boasts a large and growing industrial base, but also a fast-building ecosystem for innovation.
Mexico accounted for 35 per cent of the entire region’s foreign direct investment, which highlights the fact that Australian companies should expect to compete and co-operate with leading global companies when doing business in Mexico.
With regard to language, it is important to understand that while senior leaders often speak fluent English, Australian companies will benefit from having staff or partners that speak Spanish. This is especially the case at middle management levels, where many negotiations are conducted.
Mexicans are relationship driven and will sometimes expect to develop relationships in more social settings. Mexican counterparts will often take time to assess the benefits of working with new foreign companies. Relationship building activities, however, are no substitute for commercial astuteness.
Setting up in market
Australian companies typically make significant investments – either through acquisition or in developing greenfield assets – in Mexico to maximise business opportunities. This trend is reflected in the surge in Australian investment in Mexico in the current decade.
Mexico’s highly attractive cost structures, the scale of its domestic market, its proximity to other significant global economies in the region, and the opportunities afforded by its vast economic reform program contribute to its appeal.
Australian companies are well advised to undertake significant due diligence in executing such transactions. Those with a substantial presence have often worked with a range of organisations to appropriately scope the market. Austrade is well placed to provide introductions to key advisory firms and to provide other tailored support for market entry plans.
Small- to mid-sized Australian companies often look to create a presence in the market via the selection of an agent or distributor. This requires time and effort. Though there may be many qualified candidates, companies should use high standards in selecting an agent or distributor.
Since most Mexican firms are selling in a limited area, companies should consider appointing representatives in multiples cities to broaden the distribution, and take caution if considering an exclusive, national agreement. Providing the appropriate training, marketing support, samples, product support, and timely supply of spare parts is critical for success.
Many companies use a distributor and/or a retailer to distribute their products in Mexico. This channel can be used to distribute products in various regions or to distribute to several lines of business. Usually a sales agent is a freelancer, however, some Mexican firms are interested in serving as sales agents for foreign companies. This channel can be efficient for reaching smaller cities or more remote locations.
The approach to setting up in market will differ significantly according to the sector(s) in which your company operates.
Banking and finance
Mexico’s commercial banks offer a full spectrum of services within one institution. These services range from offering deposits accounts, consumer and commercial lending, corporate finance, and the operation of trust and mutual funds, to foreign exchange and money market trading.
Mexico’s commercial banking sector has been opened to foreign competition. Foreign banks are allowed to operate in Mexico. They are allowed to undertake financial inter-mediation or to solicit customers for their parent bank. Almost all major banks, with the exception of Banorte, are under control of foreign banks.
The Secretariat of Finance, the National Banking and Securities Commission, and the Bank of Mexico are the principal regulators of the banking system. The Secretariat of Finance is concerned with institutional issues such as licensing and set credit and fiscal policies. The Bank of Mexico (The Central Bank) implements these policies and also operates inter-bank check clearing and compensation systems.
Links and resources
Government, business and trade
Australia, New Zealand and Mexico Business Council (ANZMEX)
La secretaria de gobernación
Mexican Business Council for Foreign Trade, Investment and Technology (COMCE)
Secretariat of Environment and Natural Resources
Secretariat of Labour
News and media
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