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Market Entry Advisors – Mexico

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Mexico

A growing consumer class and favourable labour demographics make Mexico a rich source of opportunities for Canadian businesses.

Recent reforms in sectors such as energy are expected to open up even more doors to investment and trade. Explore the ever-expanding potential of Mexico.

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Bilateral trade between Canada and Mexico has reached $34.3 billion annually.

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Mexico is Canada’s fifth-largest export market.

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Canadian direct investment into Mexico totalled $13 billion at year-end 2014.

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Overview

Nathan Nelson

Chief Representative, Mexico,
Export Development Canada

“The more we work together as part of Team Canada the more breadth and depth we can bring, plus contacts at various levels within Mexican companies.”

Where do you see key opportunities for Canadian companies?

Reforms are creating opportunities across a number of sectors including education, financial services, government services and energy – the mother of all reforms. Formerly state-owned monopolies in oil and gas and electricity have been opened up, and Mexico also has ambitious plans to double renewable energy from 17 per cent to 34 per cent. The automotive sector is also growing; over the past five years we have seen significant OEMs establish themselves in Mexico, and as a result clusters are forming that is creating great opportunities for Canadian suppliers. We are seeing similar activity in aerospace. Plus ICT is growing, with big investments from AT&T and others that will see networks grow and new services introduced in step with a more competitive consumer market.

How does Mexico’s business environment compare to Canada’s?

Mexico and Canada are very different business environments. It’s important to learn Spanish, build relationships here, show a presence in the market and think long-term. Patience is important. Things take longer, so you have to budget time and financial resources accordingly. In addition to visiting frequently and participating in trade events, where you can get to know people, the sector and the local culture, hiring a knowledgeable and well-connected local representative is wise.

In addition to EDC, what other resources are available to Canadian companies?

We take a Team Canada approach: We work closely with the Trade Commissioner Services and Global Affairs as we are co-located in the Canadian Embassy in Mexico together with these departments and provincial government representatives from Alberta and Ontario. Plus, Quebec has an office just around the corner from the embassy. And the Canadian Chamber of Commerce also has an office nearby. We all have a comment goal of supporting Canadian investors/exporters be successful in Mexico.

We often bring in the other partners who provide incremental market knowledge and other support mechanisms. For example, collaboratively, we offer matchmaking events tied to key sector events such as the Congreso Mexicano de Petroleo (annual oil an gas event), and the Canadian Chamber hosts social mixing events.

These events are a great opportunity to learn from other Canadian companies already doing business in Mexico – what has worked, but also what hasn’t worked. Periodically we also host webinars and matchmaking sessions that leverage our longstanding financial relationships and focus on providing useful information on procurement.

The more we work together as part of Team Canada, the more breadth and depth we can bring plus contacts at various levels within Mexican companies.

Market entry

Jean-Dominique Ieraci

Senior Trade Commissioner,
Embassy of Canada in Mexico

“Establishing a local presence in Mexico is important to successfully secure contracts and expand business opportunities.”

What is the biggest potential obstacle Canadian businesses face in Mexico?

With a growing middle-class, Mexico presents a range of valuable opportunities to Canadian companies. Bilateral trade and investment is growing. Mexico has, over the past three years, embarked on an ambitious reform agenda across numerous sectors, including energy and telecommunications. These reforms, while still ongoing, are providing a more secure and predictable environment for foreign investors. Mindful of sectoral opportunities and Canadian capabilities, the Trade Commissioner Service’s priority sectors in Mexico include clean-tech, oil and gas, infrastructure, automotive, ICT, mining and agriculture.

While Mexico offers numerous opportunities, Canadian businesses looking at entering the Mexican market face certain challenges as well. These include security risks in certain regions of the country and the management of cultural differences, especially in the business context. Investors also cite the rule of law as a challenge in conducting business in Mexico.

What should Canadian firms do ahead of time to avoid challenges?

We recommend that Canadian businesses review the Government of Canada’s security advisory for Mexico prior to visiting the country (available at: https://travel.gc.ca/destinations/mexico ). It is also recommended that companies be aware of Mexican business practices and that they have staff with Spanish language capabilities, as business meetings in Mexico are primarily conducted in Spanish. The Canadian Embassy in Mexico can provide lists of local service providers working in different areas that can assist companies interested in entering the Mexican market (e.g. security, legal, real estate, human resources, translation/interpretation, import procedures and due diligence). Canadian exporters and investors should also be familiar with Canada’s Corruption of Foreign Public Officials Act (CFPOA).

What next 3 steps towards market entry would you recommend company’s take?

We recommend that companies approach the Canadian embassy to communicate their plans, as part of our responsibility is to assist Canadian companies and facilitate introductions to local contacts. Further, it would be beneficial for Canadian companies to ‘do their homework’ and study the market thoroughly before starting operations in country. Finally, it is often helpful to have a local partner (or local staff) who knows Mexican customs and business practices. It is worth noting that establishing a local presence in Mexico is important to successfully secure contracts and expand business opportunities. Attempting to manage business activities or an investment from Canada can create numerous challenges.

Direct investment

Adriana Ibarra Fernandez

Partner,
Baker & McKenzie SAS

“If [companies are] serious about doing business in Mexico, they need to set up their company correctly and invest to have a physical presence here.”

What’s your top advice for Canadian companies coming to Mexico?

Set up a subsidiary in Mexico. One of the common mistakes among foreign companies is they start by incorporating a company in Mexico, but instead of having a physical presence in the early stages they appoint an accountant or a lawyer as a fiscal domicile in order to access the market. The tax authorities in Mexico like to do visits to ensure there really is a physical address. We’ve seen companies that have had their business registration suspended because they didn’t meet this requirement.

What options are available to small and mid-sized companies that can’t afford to set up shop right away?

Perhaps they can have a small office with one employee. If they’re serious about doing business in Mexico, they need to set up their company correctly and invest to have a physical presence here. There are many corporate offices that lease small spaces, and some are set up so you can share administrative services with other tenants.

What do you think surprises Canadian companies the most about doing business in Mexico?

Foreign companies are often surprised by the strong presence of labour unions in Mexico. If the local unions see an office being remodelled or a new building being built, they assume it’s a new business and will want you to affiliate with them. So make sure you get good labour advice. A good lawyer should be able to help you get a sweetheart union appointed.

Market entry

Armando Díaz

Managing Director, Products Industry,
Accenture Mexico

“The recent reforms and opening of competition in telecom, oil and gas, petrochemicals and other industries present major opportunities for investors from Canada and elsewhere.”

What are the best opportunities for Canadian companies in Mexico today?

The recent reforms and opening of competition in telecom, oil and gas, petrochemicals and other industries present major opportunities for investors from Canada and elsewhere. Mexico’s economic, political and social stability – and high-quality, affordable labour – make it particularly attractive to invest in manufacturing, high-end technology production and highly specialized services. Mexico has the second-highest capital flow in Latin America and it is easy to open a new business, taking only six days compared to 108 days in Brazil.

What market-entry models work best?

The best offerings that companies can bring to the Mexican market include high-quality client service, a strong digital presence and the incorporation of multiple channels to engage Mexican customers. The current government is incentivizing public-private partnership models in high-investment projects across several industries, including heavy infrastructure, petrochemicals and highways. In other sectors, such as consumer packaged goods, international companies that want to invest or set up operations in Mexico do not have any particular restrictions, compared to other emerging markets.

What advice can you give to small and mid-sized enterprises (SMEs) with limited resources for doing business in Mexico?

There are several non-governmental programs that smaller companies can leverage to establish operations in Mexico – including those from the business association Coparmex – as well as government programs from Pepe y Toño (focused on entrepreneurs) and Bancomext. All these programs are specifically designed to help SMEs trade, export and make use of the Mexican free trade agreements with Canada.

Anti-bribery

Alexandra Wrage

President & Founder,
TRACE International, Inc., Annapolis, Maryland

“Since the use of intermediaries in government procurement in Mexico is neither regulated nor prohibited, there is a serious risk of indirect payments to government officials related to regulatory requirements.”

What corruption risks should Canadian companies be prepared to address?

Mexico is ranked 103 out of 199 countries on the TRACE Matrix, which measures business bribery risk by country. Mexico represents a ‘moderate’ bribery risk, and scores well for ratification and implementation of anti-bribery laws. However, Canadian companies doing business in Mexico may be exposed to a wide range of corruption risks, including requests for political donations or demands for bribes to obtain permits or licences. Canadian companies participating in public contracting may be exposed to corruption when bidding for projects or to keep large contracts.

What action can Canadian businesses take to protect themselves?

Since the use of intermediaries in government procurement in Mexico is neither regulated nor prohibited, there is a serious risk of indirect payments to government officials related to regulatory requirements. Canadian businesses should require detailed due diligence information from their third parties, including suppliers, customs brokers, consultants, attorneys, public notaries, ‘gestores’ (middlemen) and any agents interacting with government customers.

How can Canadian companies help ensure they are dealing with ethical business partners in Mexico?

Canadian companies should carefully vet new business partners, as well as heritage third parties, and require evidence of a compliance program and completion of anti-bribery training. Working with TRACE-certified companies can provide Canadian businesses with the assurance that the entity has completed a rigorous due diligence process based on international standards.

Export Development Canada does not endorse or favour any organizations listed above and is not responsible for the actions of those parties.

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Market Entry Advisors – Mexico was last modified: August 28th, 2017 by Export Development Canada.
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