Is USMCA Good To Start Business In Mexico
As the business world shifts and evolves, smart executives and founders are thinking of ways to both drive up profits and minimize expenses. International expansion has been a gateway to both. Entering new markets allows you to use a different labor market to your benefit, while also expanding your product or service to a new audience. Mexico, in particular, has become a new hub in terms of North American business. However, it’s important to understand the pros and cons, as well as the recent USMCA (United States – Mexico – Canada Agreement), to take advantage of these opportunities.
Pros and Cons Of Opening A Business In Mexico
As a start, if you’re interested in self-mastering a business strategy in Mexico, you want to build around the major benefits. They run as follows:
Geolocation: Mexico is located in proximity to both the United States/Canada as well as Central America. As a result, it’s easy to reach both of these markets with Mexico as a central hub. Of course, if you have ambitions to work in other areas besides, this may be more of a con.
Labor Market: Labor is inherently cheaper in Mexico than in other countries, and this is one of it’s largest draws as a market. In addition, as the currency and economic conditions improve, things will only get better.
Social Development: This government branch is specifically designed to help build up impoverished and rural areas of Mexico, creating a possible opportunity.
However, like any country, there are particular cons you need to consider if you want to start a business in Mexico. Here are some of the major hurdles:
Creating a Legal Entity: Compliance is essential when it comes to hiring international employees. Many companies try to make this easier by establishing a legal entity in Mexico. However, one needs to follow Mexico’s specific rules and understand that this can be a time-consuming process.
Bureaucracy: Complicating this is navigating another country’s bureaucratic processes. Various regulations and delays may cause you to miss your window of opportunity to expand.
Uncertainty: One of Mexico’s largest trade partners, the US, is in a period of uncertainty in terms of relations. However, as we will explain in a moment, the trade environment may become clearer soon.
Understanding a USMCA Comparison
One major factor that everyone needs to consider when it comes to doing business in Mexico is the USMCA. Known as T-MEC in Mexico, this is a free trade agreement designed to supersede NAFTA and is signed, but not ratified, at the time of this writing. However, many political figures are confident that this will reach a positive conclusion, so adapting to USMCA may be more of a when, as opposed to an if.
The goal of the current administration is to try and modernize NAFTA with this new agreement, and there are indeed some opportunities for people looking to do business in Mexico. Here are some of the key elements to consider.
Digital Products: New provisions of the agreement allow data to be transferred cross-border, and cutting down limits on where data can be stored and processed. The terms of copyright have also been extended from 50 to 70 years.
Import/Export: Automobiles must have up to 75% manufactured in either the US, Mexico, or Canada to avoid tariffs. This may impact what type of industries want to do business in Mexico, based on what they specialize in. Thus, the agreement will help small businesses access the markets of potential trading partners, creating a stakeholder platform that provides entrepreneurs the chance to offer regular feedback on improving USMCA and market access for small firms. Along with this, USMCA eliminates a “local presence” requirement for cross-border service providers. This creates a massive lowering of costs. With this rule in place, small businesses no longer need a foreign office to do business.
Employment: 40% to 45% of all automobile parts need to be made by workers who earn at least $16 an hour by 2023. Mexico recently passed tougher labor laws to protect workers. While you can still reap the benefits of cheaper labor in Mexico, this makes compliance more important. The agreement, if enforced, would strengthen labor standards and rights, especially those related to collective bargaining in Mexico. This will help support better wages and labor conditions across the board.
Improving Your Organization Via Global PEO Best Practices
As alluded to before, even with USMCA potentially opening up a sea of business opportunities, the conventional methods of opening up a business in Mexico are far from flawed. Hiring on your own staff to lead these new teams requires lots of bureaucratic red tape to navigate, which could throw off your planned expansion timeline. The same applies to opening your own entity to engage more control. With this said, there is a way to go about opening your own business in Mexico without a legal entity.
This is using solutions like Acumen International’s Global PEO system. Our team will handle complex aspects like onboarding and payroll, whereas you still remain in control of your employees, all while not having to worry about compliance issues. If you want to promote your brand without needing a local presence, we can help make that happen. If you do want to fully set up in Mexico, our solutions allow you to take advantage of workplace diversity and be able to recruit the top talent.
It’s important to remember that a total of 80% of business respondents believe that their talent acquisition is more about total value creation for the company than achieving cost savings. This means that it’s essential that you think of the top quality options when it comes to starting a business in Mexico without incorporation. The USMCA differences that we have profiled, show new opportunities in this area, but also new regulations you need to remain compliant too.
At Acumen International, our services, like Global PEO, designed to help you navigate this balance. Foreigners can open a business in Mexico, building up their team the way they want while being confident that they are in compliance with all regulations. On top of this, it’s done at a fraction of the speed of foreign incorporation. There is barely a better way to enhance value creation for your company than that.
Reach out to us today for more information.