Lee Iwan's “Business in Mexico”

Business in Mexico

Introduction—In this series, I provide tips, advice, things to watch out for, things to accept, and other related matters about how to do business with Mexico. I cannot tell you if working in or doing with Mexico is good or bad. There are benefits, disadvantages and risks. I know success stories and failures, but I strongly believe that if you have this information, doing business will be easier, with less problems, and will be more efficient.

Mexico is an immense country, with enormous economic and social contrasts, thousands of cultural and regional differences, and a complex history that probably can never be understood completely by the foreign business person.

Regional Generalizations—Huge Broad Sweeping Statements about Mexico

Mexico can be roughly divided into four major and distinct economic and cultural areas: the north, central, south, and border-towns and tourist areas.

North—Mexico's northern region has assimilated many habits and customs of the United States, many of the maquiladoras (toll manufacturing factories) are located here, business has a familiar feel to it, good infrastructure, there is a sense of urgency and competitiveness when doing business. Many of the most important companies in Mexico were founded in the northern states. Generally conservative in their choice of government.

Central—Mexico's central region is more provincial. Business moves slower than in the north. This region is growing by leaps and bounds as state and local governments are promoting foreign investment and investing in infrastructure. Traditionally conservative and stable in politics (actually the Mexican revolution began here) and business. Values are similar or comparable to the mid-west in the United States.

South—Mexico's southern region is the most underdeveloped region in Mexico, and the lowest level of infrastructure, this include the tropical forests, many indigenous groups, and the highest level of extreme poverty. Not surprisingly, the politics are more socialistic or liberal than the rest of Mexico.

Border-towns and Tourist Towns—This is the Mexico many people know, and they unfortunately use these towns to make judgements about the rest of the country, people, work-habits, etc. This would be equivalent to saying that Las Vegas, Nevada provides a complete and excellent representation of any town, state or region in the United States.

It’s all about People and Relationships

Business in Mexico is all about relationships and people. It is important to attend lunches or dinners with your potential customers, major suppliers, distributors and agents. If invited to weddings, or family events, it is important to attend. These social occasions help to deepen relationships, and promote understanding, an integral part of doing long-term business in Mexico.

Mexicans use family and personal networks for business. The contacts generated through these networks are considered trust-worthy. The faster you establish genuine personal and social relationships in Mexico, the more you will recommended, and it will become easier to do business.

Business trips to meet and discuss issues and problems with suppliers, customers and partners, should be programmed at least twice a year, and I recommend much more frequently when starting up a new operation or business.

Do you Speak Spanish?

If the answer is no, and you want to really be successful in your Mexican endeavors, please learn to speak Spanish. It doesn’t have to be business oriented language training, but you should be able to hold a conversation over lunch or in a relaxed environment. Sure you can get by with English, and many people will be happy to practice with you once you arrive in Mexico.

But to really understand the Mexican business and social culture, I highly recommend you learn how to carry on a conversation in Spanish. It shows your intention to learn and understand the Mexican culture … and Mexican business people see this as a big effort on your part, and it will be appreciated.

If you cannot speak the language, and are serious about working in Mexico, hire one or bring someone from your company who can speak Spanish. Ask your Mexican counterparts if they would be more comfortable with a translator present, and if they could arrange for one.

Language is nothing more than another barrier to doing international business, but add this hurdle to the other barriers (cultural, economic, social, educational) and suddenly doing business internationally seems like a difficult proposition.

Lunches and Dinners

The normal time to eat lunch (comida) in Mexico is from 2:00 to 4:00 p.m. This is the major meal of the day. In most small to medium-sized cities, people go home and eat with their families, and return to work from 5:00 until 8:00 p.m.

A business lunch (comida) can last one to six hours, depending on your group. Business conversation will likely occur before and during the meal, but usually the conversation will turn to other themes after dinner.

Dinners (cena) begin after 8:30 p.m., and usually not a heavy meal. During the week may last an hour or two hours. If on the weekend can last three to five hours.

Things to Avoid Talking About

I recommend listening and watching others before making any comments or bringing up potentially difficult themes (religion, politics, abortion, immigration). Get a feel for your group and their interests (and opinions) before blundering in your comments, criticisms and great ideas. Be careful not to bluster, rant and rave or carry on about how magnificent and wonderful the United States is compared to Mexico.

If asked your personal opinion about a difficult theme, be honest, but remember to keep it light and brief. Many Mexicans want you to explain U.S. government policies and culture, immigration decisions, economic policies, etc. If this is not possible, be honest and do not enter areas of conflict or spread misinformation.

Business Management Mentality and Business Consultants

Most Mexican businesses family-owned, and the focus of many current managers and business owners is geared toward running a family business or maximizing profit in a short defined period, as opposed to long-term growth and investment. This affects, and can undermine, many business decisions and relationships.

Important decisions related to; investments, planning and strategy, risk evaluation, and day-to-day operations may be stalled or create significant problems unless everyone is in agreement on the goals and objectives, investment and planning required.

There is a current boom for business management consultants, management courses and management seminars throughout Mexico, as the lack of corporate managerial skills are being identified and addressed by business owners and shareholders.

In general, the culture of hiring and using business consultants in Mexico is limited to the industry leaders, forward-thinking pioneers, trans-national companies or existing Mexican companies currently involved in some sort of crisis.

Family Life

Mexicans consider family life and family events to be incredibly important, taking priority over work in almost all situations. They expect their employers to understand the importance of these relationships and make any necessary accommodations for major events.

Individuals, not Natural Team Players

Mexicans are independent, and more comfortable doing it alone and doing it their way. Everyone wants to call their own shots, run their own business, make their own agenda. It can be very frustrating if you are used to strict discipline and adherence to a rule book. This natural independence is great if you are seeking alternative methods, creative solutions, flexibility, and quick responses from your people.

Mexicans do not discourage teamwork, on the contrary, there are great opportunities to teach, support and reward group activity. Many of the most successful companies in Mexico have been able to implement teamwork and productive interactive systems. If you can harness and incorporate this individuality within your business structure, you will have a very successful adventure.

Take a look at the results of Mexicans in individual vs. team sports on an international level. Mexicans excel at boxing, speed walking, cycling, long distance running, diving, which are all individual sports. Team sports, football, soccer, baseball, volleyball, rugby, and basketball are dominated by other countries and cultures.

Criticism

Be careful of how, and how aggressively, you criticize anyone, their way of life, religion, government or methods of doing business, especially in a social environment. You may believe it is constructive, but until you create a relationship based on mutual respect, this will be seen as negative (and ethnocentric). If you absolutely have to comment, better to ask why something is done in a certain way, let your hosts explain it, don’t pass judgment.

Form is important. How you are doing it counts, as well as the message. This is quite different from the United States, failure to pay attention to the delivery may cause more problems than you expect.

If the criticism is specifically related to business processes or results, explain what you wish to achieve, how you want them to modify their actions or processes and why. Focus on the expected results and ask for feedback and their observations on how to achieve the objective in Mexico.

Politics and Political Parties

There are three main political parties in Mexico, the Institutional Revolutionary Party (PRI), the National Action Party (PAN) and the Party of the Democratic Revolution (PRD).

The PRI was the ruling party in Mexico for 70 years until their recent defeat in 2000 to the PAN. Similar to the Democrats in the United States, with a platform that believes big government is good government. Infrastructure development and social programs are viewed as job creation in and of itself. Currently in the process of breakup and re-organization, with long time members leaving for the other two parties. Viewed as liberal in their philosophy and orientation.

The PAN party is similar to the Republicans in the United States. Won a historic and overwhelming victory against the PRI in 2000. They believe government’s role is to help increase private industry growth and create conditions and infrastructure to support continued growth. Infrastructure projects are viewed as necessary in order to increase competitiveness. Viewed as conservative or right wing in their philosophy and orientation.

The PRD is party formed during the time of the PRI rule in Mexico, by more liberal members of the PRI. Known as the most socialistic of the parties. Seeking entirely new economic models that focus upon redistribution of wealth. Viewed as extreme liberals or socialists.

Working Hours

A normal work week for a most Mexicans is 44 to 48 hours. Eight hours a day Monday-Friday and six hours on Saturday.

Office jobs in Mexico City, Monterrey and Guadalajara have business hours from 8:30 a.m. to 5:30 p.m., or 9:00 a.m. to 6:00 p.m., similar to the United States. Generally they work Monday to Friday.

In the medium and small cities in Mexico, all businesses open at 9:00 or 10:00, close from 2:30 to 4:30, and re-open from 4:30 until 8:00 p.m.

Most retail stores, malls and supermarkets, are open from 8:00 a.m. to 9:00 a.m. and close around 9:00 or 10:00 PM, seven days a week.

Restaurants will open for; breakfast between 7:00 a.m. to 11:30 a.m., comida 2:00 p.m. to 5:30 p.m., and cena 8:00 p.m. to 11:00p.m.

Taxes

The national tax authority in Mexico is called the Hacienda. This is similar in function to the Internal Revenue Service in the United States. The tax system in Mexico is complicated, with strict controls on transfer pricing for transnational companies, and limited tax advantages for companies seeking to avoid taxes by re-investing in their existing businesses.

Claudia Avila Connelly of AMPIP provided the following information about taxation in Mexico:

The taxation system in Mexico is primarily concentrated in the federal system. The three primary taxes are the ISR (impuesto sobre la renta) which is a proportion of salary, IMPAC (impuesto al activo) tax on assets, and IVA (impuesto a valor aggregado) a value-added sales tax of 15 percent.

At the state level the only tax is the ISN (impuesto sobre nomina), tax based upon payroll, this rate varies between states. For example in Queretaro there is no ISN, while in other Mexican states might vary between zero and two percent. This may be waived depending upon the social impact and generation of employment by the investment project. Other costs at the state level that may be negotiated would be the public property registration, which represents a percentage of two to five percent of the value of the building.

At the municipal level the only tax that exists is the Predial (property tax). There are other costs related to the construction license and title change. All of these can be negotiated as incentives but any concession granted to the investor, must be previously approved by the local town administration, with evidence of the session minutes where it is clearly stated that the concession has been granted by the administration, and signed by all members.

It is the employer’s responsibility to retain, pay, and report the taxes and income for workers (unless they are private contractors).The average Mexican worker will not ever have to fill out an income tax form.

The difference in tax law between the United States and Mexico is enormous. One of the most frightening aspects for U.S. trained accounts is that there are modifications to the Mexican tax code every month. This means that your accountants must update their knowledge of the tax code and the changes on a monthly basis.

As with all tax laws, there are grey areas that will be interpreted differently by the tax authority and the entrepreneurs and corporations.

Mexico has a huge underground economy, with estimates that up to 60 percent of the commerce and services are not registered with Hacienda, and do not pay taxes. This puts pressure on the legally registered businesses, and Hacienda seeks to audit and verify that those registered business are conforming. This has caused a great deal of controversy, and the term “fiscal or tax terrorism” has been used by angry businessmen who want Hacienda to focus their efforts incorporating those businesses outside of the system, instead of re-auditing those who are captive in the system.

Tax reform is a big issue currently in Mexico, and I believe that in the near future steps and legislation will be introduced and approved to simplify the tax code and streamline the system. I strongly recommend a good accountant, a good internal auditor and a good external auditor for any business dealings in Mexico.

Last modified: Friday, March 29, 2019, 6:27 PM