Mexico City

United Mexican States Business Guide

Introduction

The United Mexican States (Spanish: Estados Unidos Mexicanos), or simply Mexico (Spanish: México), is a country located in North America, bounded on the north by the United States; on the south and west by the North Pacific Ocean; on the southeast by Guatemala, Belize, and the Caribbean Sea; and on the east by the Gulf of Mexico.  The United Mexican States comprise a constitutional republican federation of thirty-one states and a federal district, Mexico City, one of the most populous cities on Earth.  Covering almost 2 million square kilometers, Mexico is the 5th largest country in the Americas by total area and 14th largest in the world.  With a population of almost 109 million, it is the 11th most populous country and the most populous Spanish-speaking country in the world.  As the only Latin American member of the Organization for Economic Co-operation and Development (OECD) since 1994, Mexico is firmly established as an newly-industrialized country.  Elections held in July 2000 marked the first time that an opposition party won the presidency to the Institutional Revolutionary Party (Partido Revolucionario Institucional: PRI), that held it since 1929, culminating a process of political alternation that had begun at the local level since the 1980s.

Economy

Mexico has a free market economy that recently entered the trillion dollar class. It contains a mixture of modern and outmoded industry and agriculture, increasingly dominated by the private sector. Recent administrations have expanded competition in seaports, railroads, telecommunications, electricity generation, natural gas distribution, and airports. Per capita income is one-fourth that of the US; income distribution remains highly unequal. Trade with the US and Canada has tripled since the implementation of NAFTA in 1994. Mexico has 12 free trade agreements with over 40 countries including, Guatemala, Honduras, El Salvador, the European Free Trade Area, and Japan, putting more than 90% of trade under free trade agreements. The new Felipe CALDERON administration that took office in December 2006 faces many of the same challenges that former President FOX tried to tackle, including the need to upgrade infrastructure, modernize the tax system and labor laws, and allow private investment in the energy sector. CALDERON has stated that his top priorities include reducing poverty and creating jobs. The success of his economic agenda will depend on his ability to garner support from the opposition.

Market Overview

  • The North American Free Trade Agreement (NAFTA), which was enacted in 1994 and created a free trade zone for Mexico, Canada and the United States, is the most outstanding feature in the U.S.-Mexico bilateral relationship.
  • Since the implementation of NAFTA, Mexican imports from the U.S. have increased exponentially, totaling over $120 billion in 2005. Through October 2006, U.S. exports to Mexico were $112.3 billion, up 13.3% over the same period in 2005. U.S.-Mexico bilateral trade has increased 232%: from $88 billion in 1993 to $292 billion in 2005, although China just surpassed Mexico as the U.S.’s second-largest trading partner.
  • In 2006, the economy grew by 4.5%, the highest figure since 2000, although the Treasury predicts growth slowing in 2007 to 3.6% due to slowdowns in U.S. growth and Mexican industrial production.
  • On December 1, 2006, Mexico inaugurated Felipe Calderon as President. Although President Calderon’s narrow electoral margin and the unusually divisive nature of the election have given rise to certain challenges, Calderon inherited a stable, growing economy tightly linked to U.S. economic cycles. With inflation under control, foreign direct investment continuing to grow and relatively stable debt and equity markets, Mexico’s macro-economic picture is a healthier one than in early years of this decade.

Market Challenges

  • Mexico’s size and diversity are often under appreciated by U.S. exporters. It can be difficult to find a single distributor or agent to cover this vast market.
  • The Mexican legal system differs in many significant ways from the U.S. system. U.S. firms should consult with competent legal counsel before entering into any business agreements with Mexican partners. The U.S. Commercial Service can provide a list of attorneys with experience in dealing with U.S. corporate clients through the Business Service Provider program.
  • The banking system in Mexico has shown some signs of growth after years of stagnation, but interest rates remain relatively high. In particular, small and medium enterprises (SMEs) find it difficult to obtain financing at reasonable rates despite Mexican Government efforts to increase capital for the SMEs.
  • U.S.companies need to conduct thorough due diligence before entering into business with a Mexican firm, and should be conservative in extending credit and alert to payment delays. As one element in a prudent due diligence process, the U.S. Commercial Service offices in Mexico can conduct background checks on potential Mexican partners. There is a fee for this service.
  • Mexican customs regulations, product standards and labor laws may entail pitfalls for U.S. companies. U.S. Embassy commercial, economic, agricultural and labor attachés are available to counsel firms with respect to regulations that affect their particular export product or business interest.
  • Have patience. Everything takes more time to accomplish in Mexico than what U.S. companies are used to or would like.

Market Opportunities

  • With the overwhelming amount of trade between the United States and Mexico, there are abundant market opportunities for U.S. firms in Mexico.
  • Mexico’s geographic proximity to the United States has propelled the maquiladora industry with thousands of factories near the U.S.-Mexico border for export back into the United States. Marketing to these manufacturers could lead to substantial opportunities for U.S. firms.
  • Some of the most promising sectors include: airport & ground support equipment, automotive parts & supplies, education & training services, electronic components, energy technology & services, environmental technologies & equipment, franchising, hotel & restaurant equipment, housing & construction, plastic materials/resins, security & safety equipment & services, telecommunications equipment, transportation infrastructure equipment & services and travel & tourism services.
  • Gven the size of the Mexican market, there are numerous other promising prospects, including medical equipment, food  rocessing equipment, architectural and engineering services and more. If an industry is not explicitly mentioned as a “best prospect,” it does not necessarily mean that there are not ample opportunities in the Mexican market.
 
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Introduction

Business Etiquette

Business Resources

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