Return to the main menu for MexicoToday's Mexico is full of challenges and opportunities. The Government of Mexico remains committed to the path of economic integration with its NAFTA partners and the rest of the World. In addition, the Mexican economy is bouncing back from the financial crisis and resulting recession that were triggered in December 1994 by a lack of confidence in the peso. Mexico's exports have been growing on an average of about 20% during 1994, 1995, 1996, and in the first quarter of 1997. Therefore, Mexico poses great expectations for companies planning to manufacture or in invest in this country.
Non-IT organizations can benefit from Mexico’s economic boom. Economic sectors showing the strongest average growth are transportation, construction, and electricity, followed closely by financial services. Strong activity in these areas reflect the emphasis on infrastructure development. However, companies planning to invest must pay close attention to foreign competition, production inefficiencies, high borrowing interest rates and unskilled labor.
When developing a market entry strategy for Mexico, investors should consider such points as: small retailers and family owned businesses dominate the market, mass merchandising is especially popular for consumer goods, and there is often a need for performing original market research, given the limited amount of reliable information in many areas.
If an investor is interested in setting a sales office, one thing to consider is that the selection of the appropriate agent or distributor requires time and effort. Though there may be many qualified candidates, using high standards in selecting the agent/distributor are highly recommended.
Franchises in Mexico have been growing rapidly since 1991 and despite the December 1994 devaluation. The franchise business survived the crisis and grew 15 percent in 1995 and by 25 percent 1996. This growth was achieved mainly among Mexican franchisers. There are over 400 franchisors operating in Mexico of which 40 percent are foreign and 60 percent Mexican. In 1996, the franchisors had 58,625 outlets grossing US$4 billion in sales. Even with US counsel, it is recommended that a Mexican lawyer review all legal documents, as Mexican law is different than US law.
Manufacturing in 1996 accounted for 22% of GDP, and 21% of employment in the formal urban economy. Ever since 1995’s recession, manufacturing has grown 11%. Manufacturing in Mexico is advantageous because of the use of cheap labor, but manufacturing is limited to certain industries because of the low percentage of skilled labor. NAFTA investors receive both national and Most Favored Nation (MFN) treatment in setting up operations or acquiring firms, except where reservations have been specifically made for certain types of industries (39).
The network infrastructure within Mexico has improved during the last couple of years since the privatization of the telecommunications industry. Large investments have been made to improve both fixed networks communication and cellular services. This helps local plants to be able to communicate with their affiliates and share valuable information regarding operations and their customers.
There are many opportunities for U.S. companies to form joint ventures with Mexican companies. Most of the old, restrictive investment regulations have been repealed after the NAFTA, and many good Mexican firms are in need of financial support. With interest rates commonly between 20 and 30 percent, foreign investors are welcome. Forming a joint venture with the right Mexican partner can be a quick and effective way to gain market access.
Last update: December 18, 1998.
