Mexico: an essential trade and manufacturing hub

There’s a wealth of reasons that businesses might look to expand into Mexico. Its optimal location along the US’s southern border is just one of these – offering convenient access to North America, as well as Atlantic and Pacific trade routes.

This prime position means that Mexico can connect businesses to more than one billion consumers and 60% of the world’s GDP¹. It’s also the largest Spanish-speaking country in the world² and the second most populated in Latin America³. All of this makes it an attractive domestic market with flourishing industries in food and beverages, professional services, and retail.

In 2021, Mexico exported approximately $US494bn worth of goods, an increase of 7.3% on pre-pandemic 2019 levels⁴. This is partially due to the fact that it has more free trade agreements than any other country in the world – 12 with 46 countries⁵.

In November 2018, Mexico secured the continuation of trade under the United States-Mexico-Canada Agreement (USMCA), which builds upon the original trade framework set out in NAFTA. The USMCA offers certainty around tariffs and the ability to move goods across the border both quickly and efficiently.

Mexico also lays claim to a positive “ease of doing business” score. It currently sits in 60th position out of 190 countries, making it the second-best business environment in Latin America⁶.

A stable economy and, crucially, strong manufacturing capabilities, are also vital to the country’s appeal.

Mexico is a manufacturing hub – not just for the US, but for companies around the world. In fact, the country’s recent 3.9% increase in industrial activity can mainly be attributed to this industry⁷, which offers superior, cost-effective capabilities across many sectors.

The IMMEX programme, which was established in 2006, means companies that manufacture in Mexico are exempt from paying certain taxes – including import duties and VAT – on raw materials entering the country.

Manufacturing capabilities in Mexico have evolved considerably since the pre-NAFTA days. Mexico now has a skilled workforce and boasts first-rate capabilities, with an abundance of expertise, especially in the automotive sector⁸. Aerospace, medical equipment and appliances are also highly successful industries.

Labour costs are low – in many industries the unit cost per labour is less expensive than China – but the workforce is skilled and experienced, offering high-quality production capabilities.

Working capital cycles here are short and small batch production is often utilised, resulting in agility and the ability for goods to make it to market quickly.

Meanwhile, shipping issues and costs are often eliminated as North America can be easily reached with ground transport. Goods shipped from here benefit from supply chain diversification, too, as transit times are cut, and risks are reduced.

As with any new country, moving into the Mexican market can present businesses with some hurdles, one of which is a language barrier.

Mexico can also seem bureaucratic to outsiders approaching the market for the first time. Manufacturing in particular is an industry that suffers from a high turnover of employees and is one where an in depth understanding of both payroll and HR is required, which is no small undertaking. Knowing how to integrate payroll and tax will also make internal processes much smoother.

Enforcing contracts can prove to be tricky – it takes 350 days in order to do so and there are approximately 40 procedures involved⁹. And while Mexico has a well-developed financial sector, obtaining credit is still relatively difficult when compared to most developed nations in the world.

These are of course challenges that can be tackled, but they illustrate why it’s vital to work with trusted and experienced partners – those with detailed knowledge of the market."

When it comes to business, Mexico presents a complex yet promising environment, and your needs will vary depending on what stage you and your business are at. Getting to know the market is step one, closely followed by defining your own strategy for growth here and committing to paper exactly what you want to achieve.

From here, you will need to decide where exactly you should be setting up. This could include establishing where the best manufacturing ecosystem is, or where you should be opening a factory.

At this point, introductions to other business professionals who can help you understand the intricacies of the market and the different challenges that companies face when they come to Mexico will be hugely beneficial. You will also most likely need to recruit experienced, bi-lingual staff.

At HSBC, we can support you with all of the above, regardless of where you are on your Mexico journey.

HSBC’s International subsidiary banking offering can help you overcome many of the challenges that you may encounter when entering into a country like Mexico. It provides the advantages of a well-connected local bank with a deep understanding of the complexities of doing business in the market, combined with a unique global perspective.

HSBC provides end-to-end support for business in Mexico, from cash management and working capital, to payroll support. We have detailed knowledge of the market and understand its nuances, such as tax management, cash management and FX. We can help you to stay in control of your finances by tracking them globally and in real-time with HSBC.net. We can assist you in releasing funds and freeing up cash – making it available for investment in your organisation’s future.

Clients can also access flexible financing solutions across our global network in order to expand their business effectively or lean on us for support when it comes to identifying growth opportunities. Solutions will be tailored to you and your business – providing better use of working capital as you expand into this exciting new area – and, crucially, financial communications will be streamlined – helping to make this transition as smooth and uncomplicated as possible.

We have nearly 1,000 branches in Mexico, with an abundance of multilingual, specialist teams. We are also the only universal bank in Mexico, North America and Canada, and this network allows us to seamlessly provide support through all three regions.

We offer the knowledge and expertise of a local Mexican bank, but with a large-scale approach and international connections. By partnering with HSBC, companies looking to expand into Mexico can lean on us for extensive support.

We can have cards set up quickly and efficiently, and can help secure credit lines, even if you don’t already have a history of credit in Mexico. We can support you when it comes to integrating tax and payroll. Our full-service offering even means we can supply you with a dedicated team who will work with you at your factories to aid with onboarding of employees.

We’ll help you make sure that your employees get paid, despite the complex systems in Mexico – because being certain that payments will happen on time is vital when it comes to retaining manufacturing staff here.

We have the experience to help you reduce logistical and supply chain issues, be more responsive to the market and achieve your own business goals. We can also offer oversight on payments across the globe. All of this will be carried out by specialists with vast experience working with multinationals.

Mexico presents exciting potential for corporates that understand that unique challenges and advantages of doing business here. As you partner, we can help you approach the region with confidence –opening up a world of opportunities for your business.

Further insights