Even as businesses struggle with sales in the United States, entrepreneurs with vision are looking to grow by exporting their products overseas. The markets getting all of the hype are the rapidly emerging BRIC countries: Brazil, Russia, India, and China.
But before venturing so far from home, small business owners might want to give serious consideration to Mexico, which offers many potential benefits to U.S. exporters, such as physical proximity and free trade agreements.
Of course, doing business with Mexico comes with some serious drawbacks. But even with the violence, crime, and corruption engendered by the drug wars, Mexico remains the second-most popular export destination for small and mid-size U.S. entities. In 2008 (the most recent year for which statistics are available), more than 46,000 SMEs in the United States registered sales to Mexico, for a total of nearly $41 billion.
Two-Way Traffic
When people think of Mexico, they usually think imports. But the country also offers many potential advantages to U.S. exporters. One, of course, is proximity. It’s much easier to conduct business with customers on the same continent and in the same or nearly the same time zone than those half a world away.
Mexico also has the 11th largest economy in the world -- and it is expected to pass Italy and move into the top 10 this decade. “Mexico has a large appetite for American goods and is the second biggest purchaser of U.S. products, right behind Canada,” says Maria Elena Rigoli, president of Collectron International Management in Nogales, Ariz., which helps U.S. firms set up manufacturing operations in Mexico. Technology products and gadgets such as iPads, flat-screen TVs, and smartphones are in high demand, as are hip consumer brands like fashion jeans, clothing, and jewelry. “The combination of Mexico’s large youth population and growing middle class presents large-scale market opportunities for U.S. companies,” Rigoli says.
In addition, there are numerous treaties and trade accords between the United States and Mexico -- most notably the North American Free Trade Agreement. “As a result of NAFTA, there’s a new class of young, dynamic Mexican entrepreneurs who largely look to the United States for ideas and business partners,” says Neal Asbury, president of The Legacy Companies in Fort Lauderdale, Fla., and the Small Business Administration’s Exporter of the Year in 2008.
Mexico Looks Up
In his 2010 State of the Union address, President Obama set an ambitious goal of doubling U.S. exports by 2015. Mexico is viewed by many experts as one of the keys to achieving that goal.
“Of the 130 countries with which I conduct my export business, none has more willing or enthusiastic customers than Mexico,” says Asbury, whose company specializes in the manufacturing and sales of food-service equipment. “Demand for American products and services in Mexico has multiplied substantially over the last decade and a half.” Asbury points out that Mexico buys more U.S. products than China and Japan combined.
“Besides the common exporting sectors like electronic equipment and chemicals, there are opportunities for U.S. businesses whose technology and experience can make a difference on the growing demand in Mexico for services in a number of different fields,” says Pedro M. Eikelenboom, founder of Arvore Consulting in Washington, D.C. Eikelenboom has helped many businesses set up exporting to Mexico. “These include medical appliances, animal feed, livestock, supply chain equipment, and technology in floriculture and integrated waste management.”
Silvia Lopez, owner of Sortek, a broker/distributor in southern Arizona that’s very active in Mexico, says that Mexican businesses “are always looking for better opportunities, better pricing. Businesses in Mexico rely heavily on information from U.S. companies. There’s a strong need for U.S. businesses to come in and offer solutions.”
Tim Finerty, CPA, of Clayton & McKervey P.C., in Southfield, Mich., which provides accounting and consulting services to companies that do business overseas, also points out that U.S. manufacturers moving their advanced manufacturing processes to Mexico has prompted some small and mid-size businesses to follow their larger customers south and bring their offerings to a new marketplace. “Here in Michigan, this is especially true for vendors that supply the major automobile manufacturers,” he says.
Seller Beware
Of course, there are many potential pitfalls to doing business in any foreign country, including Mexico. For some small businesses, the violence and corruption in Mexico is simply too much. “The drug wars in Mexico are for real,” says Beverly Solomon, who worked for years in sales and marketing for several major fashion designers and fragrance companies and had many accounts along the Mexican border. “I finally quit doing business on the border when I missed out by hours being in a town where the entire police force of eight was killed by the narcos.”
And it’s not just crime. Problems range from shipping snafus to payment delays, exchange rate fluctuations, permitting, government regulations and reporting requirements, and taxation. According to Solomon, “with the possible exception of a few places in Africa, Mexico is the most corrupt place on earth -- you have to bribe, bribe, and bribe some more. Even when trying to do things correctly, the red tape is crazy.”
But there are ways around many of these issues. For example, letters of credit are a common tool used by exporters to reduce payment risk on international transactions, including exports to customers in Mexico.
Another downside that Finerty says exporters to Mexico should be especially aware of is inadvertently creating a “permanent establishment” in the country, which could result in tax liability to the Mexican government on profits from products and services sold there.
“You don’t have to have a physical presence in the form of an office or plant to create a permanent establishment,” he explains. If one or more of your employees reside in Mexico for at least 183 days in a rolling 12-month period, this will generally result in the creation of a permanent establishment in Mexico. And that rule applies to four employees each spending 46 days in the country as well.
Issues like this demonstrate that exporting to any country, including Mexico, is a big step that should be researched carefully. To help exporters, the International Trade Administration has created a Country Commercial Guide for Mexico that includes detailed information on market conditions, purchasing power, consumer trends, distribution channels, and more. (To download a free copy, search the Market Research Library at BuyUSAInfo.net and choose Mexico from the drop-down menu.)
By Don Sadler,
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