Close relationship brings benefits for US companies doing business in Mexico
Article 3 minute read

Close relationship brings benefits for US companies doing business in Mexico

13 June 2018

The United States and Mexico share more than just a 2,000 mile border, and their bilateral relationship remains strong enough to jump any hurdle.

The US-Mexico relationship is one of major importance to the US, due to Mexico’s proximity and extensive cultural and economic ties.

In terms of trade, the US is by far Mexico’s largest partner, while Mexico is the third-largest trade partner of the US (behind China and Canada). Last year alone, their two-way trade in goods and services totaled USD$623bn, with millions of parts and finished goods exchanging across the border every day.

While headlines may often suggest otherwise, the relationship continues to thrive. Mexico’s top diplomat this year declared relations with the US were tighter than ever: “I think in many ways the relationship today is more fluid, it’s closer than it was with previous administrations, which might be surprising to some people but that’s a fact of life,” Mexico’s Foreign Minister, Luis Videgaray told Reuters in February.

Flying south

The US continues to be Mexico’s largest source of foreign direct investment, with investments totaling USD$87.6bn last year, and US companies continue to see Mexico as an attractive location for operations.

In recent years, companies such as Brake Parts Inc., Mondelez International Inc., Rexnord Corp., Caterpillar, Nucor, Manitowoc Foodservice Inc., Ford Motor Company and General Motors have all shifted operations to Mexico. Among the drawcards are Mexico’s lower minimum wage and highly skilled workforce, which allow products to be made at a significantly lower cost.

Other practical advantages are that Mexico shares the same border and time zones, allowing organisations to communicate effectively. The close proximity offers significant efficiency savings - such as reduced transport costs and shorter lead times - compared to moving operations further afield (e.g. to China or India).

Welcoming business climate

Mexico is one of the most competitive countries for investments at an international level thanks to its political and macroeconomic stability, the strength of its internal market and steady inflation.

In recent years, the Mexican government has made improvements to infrastructure and fostered competition in sectors such as transportation, energy and telecommunications. By opening its borders, Mexico has become a global manufacturing base and many US industries (such as automotive, electronics, appliances and machinery) rely on Mexican manufacturers.

One of the biggest changes has been its trade policies. Mexico has signed trade agreements with many nations, positioning itself as one of the most open countries for international trade with preferential access to potential consumers. Meanwhile the government has unilaterally reduced - and in some case eliminated – tariffs on goods.

Trade in North America

Guiding trade between the US, Mexico and Canada is the North American Free Trade Agreement (NAFTA), signed in 1994 to liberalise restrictions. There have been talks about negotiations to NAFTA which are still in revision due to political factors.

What’s important to note, however, is that although the US has a significant goods trade deficit with Mexico, around 40% of the materials used in products imported from Mexico actually originate from the US. That’s because parts are crossing the border as the two countries work together to build products. Trading with Mexico, both export and import, therefore supports the US economy and jobs.

Other challenges of doing business in Mexico

Some of the issues faced by businesses in Mexico are labour laws, crime, corruption and intellectual property infringement. Tasks such as tax payments, property registration and contract enforcement are very complex and time consuming. Language can also be a barrier; Spanish is the official language and all products imported into Mexico must be labelled in Spanish.

Although there are undoubtedly challenges and uncertainty as NAFTA negotiations continue, the economic and cultural ties between Mexico and the US are deep-rooted and steadfast. This strong cooperation and mutual dependence will almost certainly ensure that business continues to thrive on both sides of the border.

TMF Group in Mexico

TMF Group has the local knowledge to help you navigate the complexities of doing business in Mexico. Whether you want to set up a new venture or streamline an existing partnership, talk to us. Learn more about TMF Group in Mexico.

Written by

Nancy Dominguez

Director Client Services

Insights and updates delivered to your inbox.

Sign up to receive a weekly round up of posts that matter most to you. 

Sign up now