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Global Trade: How to Open a Foreign Office in Mexico

By Debra Donston-Miller

The United States and Mexico share a 2,000-mile border and hundreds of billions of dollars each year in two-way trade. About a million American citizens live in Mexico, and millions of Mexicans and Americans travel between the countries each year.1 This literal and figurative closeness is bolstered by the established trade relationships and incentives the Mexican government has put into place to enhance the country's global trade position – all of which can make Mexico an attractive target for U.S. companies looking to expand their international business presence.

Mexico is the United States' third-largest international trading partner for goods, with $525.1 billion in total (two-way) goods trade during 2016.2 Goods exports were $231.0 billion, and imports were $294.2 billion. Two-way trade in services with Mexico reached $54.5 billion in 2016.3

 

The top categories of goods exported to Mexico in 2016 were machinery ($42 billion), electrical machinery ($41 billion), vehicles ($21 billion), mineral fuels ($20 billion), and plastics ($16 billion). The top import categories from Mexico in 2016 were vehicles ($75 billion), electrical machinery ($62 billion), machinery ($51 billion), optical and medical instruments ($13 billion), and furniture and bedding ($11 billion).4

 

Mexico is the world's fifteenth largest market, by gross domestic product (GDP),5 which grew at a rate of 2.6 percent in 2016.6 For long-term sustained growth, the Mexican government has taken measures to attract foreign investment, including structural reforms affecting the energy, education, labor, financial, and political sectors.7

 

Mexico is also part of a number of initiatives and agreements designed to enhance trade, including the North American Leaders' Summits (with the U.S. and Canada). The U.S., Mexico, and Canada are also partners in the North American Free Trade Agreement (NAFTA). In fact, Mexico has more free trade agreements than any other country in the world, including pacts with Japan, the EU, and many Latin American partners8 – a distinction of note for U.S. companies with global sourcing requirements.

 

Expanding International Trade Presence in Mexico

 

There are a number of ways that U.S. companies can structure foreign investments and business operations to expand their international trade presence in Mexico. Options range from legally incorporated entities to representation offices that generate no revenues, with the gap between these two extremes covered by joint venture agreements and commercial trusts.9

 

The most common options used for foreign investment are: business corporation, limited liability corporation, corporation with variable capital, foreign company branch, and representation office.10

 

To establish a business corporation, certain procedures must be performed with the Ministry of Foreign Affairs and, in some cases, approval must be received from the National Foreign Investments Commission. As long as the entity will not engage in activities that are restricted under the Foreign Investment Act, business corporations may be owned entirely by foreign investors.11

 

A limited liability corporation must have at least two but no more than 50 partners. This type of company essentially operates the same way that a business corporation does.12 Corporations with variable capital have the same characteristics as a non-variable capital company, but offer a more flexible option for structuring investments in Mexico.13

 

A representation office is used by entities that want to establish a presence in Mexico and need a representative to perform activities in the country. A representation office performs no commercial operations.14

 

Setting up a Branch Office

 

Companies often find it easiest to expand global trade in Mexico through a branch office.15 Certain corporate requirements, such as establishing a board of directors and holding shareholders' meetings, do not apply to a branch. In addition, unlike a representation office, a branch of a foreign company in Mexico can engage in income-generating activities.16

 

However, a branch office does not have independent legal status in Mexico, so the parent company is liable for any claim resulting from the activities performed by the branch.17

 

To establish a branch office in Mexico companies must:

 

  • Register the branch with the Foreign Investment Registry
  • Register the foreign company's articles of incorporation and bylaws with the Public Registry of Commerce
  • Obtain preauthorization from the Ministry of Commerce and Industrial Development to register the branch in the Public Registry of Commerce.18

Cultural Awareness and International Trade

 

Although Spanish is the official language of business in Mexico, English is also widely spoken. Still, international traders would do well to learn relevant Spanish words and phrases.19

 

Business is ideally conducted face-to-face and through existing contacts in Mexico. Along these lines, lunches are an important part of doing business in Mexico.20 This interpersonal approach can make business negotiations seem to move more slowly than in the U.S.21

 

Management structures in Mexico are hierarchical, with final decisions made at the top. Still, input from less senior executives is valued and should be nurtured.22 According to Mexican social etiquette, direct refusals are considered rude. Mexicans who dislike an idea may use a more diplomatic expression such as "Let's wait and see."23 Care should be taken not to misread "yes," when the answer is probably "no." Mexicans also consider aggressiveness during negotiation to be rude.24

 

The

Takeaway:

U.S. companies seeking to expand global trade may find potential opportunities in Mexico. Understanding and meeting expectations on all international business and cultural fronts will help to ensure a profitable and positive relationship for both U.S. businesses and their Mexican colleagues.

The Author

Debra Donston-Miller

Debra Donston-Miller is a veteran journalist, specializing in IT, business, career and education content. Formerly editor of eWEEK magazine and content director of eWEEK Labs, Donston-Miller currently develops content and content strategy for multiple organizations.

Sources

1. “U.S. Relations with Mexico,” U.S. Department of State; https://www.state.gov/r/pa/ei/bgn/35749.htm
2. “U.S.-Mexico Trade Facts,” Office of the United States Trade Representative; https://ustr.gov/countries-regions/americas/mexico
3. Ibid
4. Ibid
5. “Gross Domestic Product 2016,” World Bank; http://databank.worldbank.org/data/download/GDP.pdf
6. “Mexico Overview,” World Bank; http://www.worldbank.org/en/country/mexico/overview
7. “Doing Business: Mexico 2015,” EY; http://www.ey.com/Publication/vwLUAssets/EY-doing-business-mexico-2015-english/$FILE/EY-doing-business-mexico-2015-english.pdf
8. U.S. Relations with Mexico,” U.S. Department of State; https://www.state.gov/r/pa/ei/bgn/35749.htm
9. “Doing Business: Mexico 2015,” EY; http://www.ey.com/Publication/vwLUAssets/EY-doing-business-mexico-2015-english/$FILE/EY-doing-business-mexico-2015-english.pdf
10. Ibid
11. Ibid
12. Ibid
13. Ibid
14. Ibid
15. Ibid
16. Ibid
17. Ibid
18. Ibid
19. “Doing Business in Mexico,” Expat Arrivals; http://www.expatarrivals.com/mexico/doing-business-in-mexico
20. “Mexico-Business Customs,” Export.gov; https://www.export.gov/article?id=Mexico-Business-Customs
21. Ibid
22. “Doing Business in Mexico,” Expat Arrivals; http://www.expatarrivals.com/mexico/doing-business-in-mexico
23. “Doing Business in Mexico,” Expat Arrivals; http://www.expatarrivals.com/mexico/doing-business-in-mexico
24. “Mexico-Business Customs,” Export.gov; https://www.export.gov/article?id=Mexico-Business-Customs

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