Setup a company in Mexico: pros and cons

Mexico is currently the second-largest economy in Latin America. Its proximity to the United States, more than 50 free trade agreements, and an inexpensive labor force make it a very attractive option to undertake diverse businesses, however, being a country full of opportunities, competition becomes fierce. An emerging business in Mexico will require not only satisfying the needs of the market but also anticipating the needs of multiple niches to create a competitive advantage.

One of Mexico's greatest advantages is that there are opportunities to produce for both export and local consumption. However, we cannot ignore the fact that life as we knew it has changed and we have a new reality that will prevail. It is becoming increasingly evident that businesses require constant transformation and evolution in order to adapt and stay at the forefront of technology.

The digitization of services was moving at a considerable pace and the pandemic only caused the need for digital platforms to become a primary resource for companies. Established companies and emerging businesses that failed to achieve an effective digital transformation were severely affected, the less fortunate ones even disappeared.

Although the pandemic affected the overall economy, it also boosted several businesses that were already operating on digital platforms. That said, among the most prominent and fastest-growing emerging businesses in recent years we have:

Financial Technology:

Nowadays, the world banking is preceded by the word online, the number of emerging FinTechs in Mexico and Latin America is outstanding and every day there are new coming and going. It takes a clear understanding of the market trends and needs to successfully penetrate the ambitious but profitable FinTech business. Currently, Mexico is the second-largest hub for FinTechs in Latin America. The three largest segments where Fin Techs are focused on in Mexico are Payments and Remittances, Loans, and Corporate Finance Management.

Web development:

We cannot think of a business that does not have an online presence, whether in social media or its own website. Online presence is directly related to success and this success is mostly achieved by having a structured marketing strategy that includes SEO optimization to successfully position your website among the top results. When it comes to web development there is a lot more than the look and feel of your brand, the backend technology is equally important as that contributes to the online experience. Having a clear picture of the performance of your website is key to understand what customers like and dislike about your website, products, or service.

Healthtech:

Among the Mexican population problems such as Type II diabetes mellitus and ischemic cardiovascular diseases have been causing a considerable public expenditure, although different campaigns have been implemented to prevent and detect these problems in time before concomitant morbidities appear, there has not been a significant change. Healthtechs are playing a critical role in both preventive measures and treatment. Healthtechs allows you to access health care providers and services from the comfort of your home. Additionally, you can have accurate and reliable diagnoses in less time and take charge of your own health and well-being by having access to personalized information and knowledge. More and more Mexicans are concerned about health issues and Healthtech is a viable option for them to keep control of their health condition.

E-Commerce Business:

Mexicans use online shopping on a daily basis, through the pandemic the E-commerce boosted the sales of the businesses with an existing platform, and the ones that were able to create an E-commerce platform were able to stay afloat. However, having an E-commerce platform is no longer enough, a reliable, stable, and trustworthy that can ease online shopping is key to stay competitive. The lack of experience from many businesses in the digital ecosystem can detriment the quality of the online shopping experience, hence the brand and even the products can be questioned, as online shopping is always seen as part of the experience associated with your brand, products, and services.

SaaS:

Software as a Service (SaaS) is a cloud-based software delivery model in which the cloud provider develops and maintains cloud application software, provides automatic software updates, and makes the software accessible to customers over the Internet on a pay-per-use basis. The cloud provider manages the hardware, middleware, application software, and security. Therefore, SaaS customers can dramatically reduce costs, as well as deploy, scale, and upgrade business solutions more quickly than with on-premise software and systems maintenance, and predict the total cost of ownership more accurately.

Pros

With a clearer picture in mind, we can now discuss the advantages and disadvantages of opening a business in Mexico, among the many advantages we can list the top 5 below:

1.  Market size:

It is no surprise that as the second-largest economy in Latin America Mexico’s population is almost reaching 130 million. This amount of people has needs of all sorts, understanding these needs and what it takes to fulfill them, will position any business the market, which with the size of Mexico will scale up with no difficulties.

2. Low operating costs:

Mexico has very cheap operational costs that will enable startups and mid-size companies to keep their expenses under control, this is a critical aspect to consider when entering a new market as costs can spin out of control and consume the business until is not viable anymore.

3. Ease of doing businesses:

The pandemic has damaged the global economy and Mexico is not an exception, for that reason, more than ever Mexicans are open to doing business in order to recover from all the havoc caused by the pandemic, this mindset facilitates conversations to create partnerships with local businesses.

4. Free Trade agreements:

Being next to the United States of America and having a Free Trade agreement makes Mexico a very good market for import and export businesses, the digitalization of these services through online shopping can considerably reduce your operational costs as opposed to having physical locations. This will ensure you are not wasting in unnecessary storage fees due to stock excess, with proper and reliable providers you can actually operate on a per demand order model, where you reach out to your provider whenever an order is generated.

5. Government support:

The Mexican government has significantly invested in the modernization of their infrastructure to facilitate the process of registering and opening a business in Mexico, with proper guidance you will find almost no obstacles to open a business in Mexico.

Cons

In contrast with the advantages of opening a business in Mexico, we would also like to list the potential obstacles you may face when entering a market with the characteristics of Mexico:

1.  Feral competition:

A good market will always be competitive, especially among startups and mid-sized companies, you will really need to find ways to create a competitive advantage otherwise you will become invisible among the many options available in the market. Robust marketing and branding will be required to create an association between your target and your company.

2. English level:

Even though Mexico is a neighbor with the USA, the overall level of English is not very good, this can cause some communication barriers or event the need to use a professional translator to make sure nothing gets lost. Evidently, not being able to communicate in the local language can prevent you from being able to properly communicate your ideas and goals, this should not be considered a blocker but more a consideration.

3. Must have connections:

Doing businesses in Mexico will require you to have some sort of connection with the locals, these connections will help you build trust among other key stakeholders and potential partners, which will always help you pave your way into the Mexican market.

4. Political uncertainty:

Mexico has been going through different phases in the political arena and these transformations often carry a certain level of concern, which can have an impact on the overall economy or policies, you need to be mindful of the ongoing political affairs and understand how these political changes can influence the country.  

5.  Limited support for startups:

As an emerging business, you may witness situations where the priority is always given to the bigger companies, this can become a challenge if your startup is not disrupting enough the market. Once you are able to disrupt you will start getting the attention your business deserves, that is why is very important to understand the market and their needs and create a holistic strategy that can position you in the market and compete against the established businesses.

Recommendations:

Find local partnerships, even though in the last years the Mexican government has been able to digitalize and optimize most of the services associated with establishing a business in Mexico, however, local expertise will ensure nothing slips between the cracks of the bureaucracy that surrounds many of the processes to open a business in Mexico. It will take a great amount of local knowledge to effectively sort all potential obstacles that small companies may find in their way of successfully established a business in Mexico.

Not only identify a market opportunity but define and refine a market niche and fulfill to every extend their needs, Mexico is a vast country where you can either create a business to fulfill the needs of the masses or segment the market to offer a more specialized product or service. Both approaches have advantages and disadvantages. When you go for the masses, you will need to consider that the competition will be feral, however, products and services for the masses have very operational and production costs. On the other hand, when you aim for a more specialized segment, your costs will increase considerably, but the revenue will pay off.

Anticipate market needs through research and development to create a competitive advantage, many businesses were unable to cope with the transformation that occurred during the pandemic, some were able to adapt and survive and just a few were able to anticipate the needs. The digitalization of services has advanced and at this very moment in time, businesses with no digital platforms are obsolete and will never be a competition for businesses with digital platforms. Stay informed of the most current technologies that can impact your business, understand how that technology will help you boost your business model or even transform it.

Mexicans have a natural instinct for negotiations, you should be open to doing so, never get offended by a counter-offer, instead, take it as an opportunity to understand the culture and even joke about it, this will help you create stronger bonds.

Trust plays a very important role when it comes to developing businesses in Mexico, thus always start your conversations with small talk and progressively get into the business conversation, sometimes trust will play a bigger role than professional experience.