General Business Topics
1. How has the current international economic crisis impacted Mexico?
Answer: The international economic crisis hit Mexico later than most of the rest of the world. As a result, 2008 was a good year for business, with the exception of the last quarter when the crisis was present and evident, on the heels of the October devaluation of the peso from 10 to 12 pesos to 1 US dollar. In February and March of 2008, Mexico probably felt the full impact of the crisis, with the peso temporarily dropping to 16 pesos to 1 US dollar. Business crawled to a halt for a month or two.
However, by the end of March, the peso had returned to around or just below 13 pesos to 1 US dollar, and fortunately, Mexicans began to accept this new exchange rate equilibrium. During the following 6 months, while economic activity was down, imports remained surprising steady, dropping but not as much as expected. Likewise, the peso continued to gain against the US dollar, revaluing to a 12 peso to 1 US dollar position by the end of the year. And, while Mexico experienced its worst year for economic growth (-8%) since 1923, everyone agrees that 2009 could have been much worse, and that the signs for the beginning of recovery during the second half of 2010 are evident.
1st quarter 2010 Mexican import figures and US export figures to Mexico show double digit increases that more than out pace the mostly single digit drops in 2009. 2010 growth figures are expected to be above 4% this year and about the same in 2011 meaning that Mexico will outperform US growth figures and that it should quickly recuperate the growth lost in 2009 with positive net growth by the end of 2011. In early 2009, most people considered that Mexico would be one of the last countries in Latin America to come back from this international economic crisis. However, one year later, most people feel that Mexico is showing clear signs that it will have moderate recovery this year with a stronger 2nd half of the year and even clearer recovery in 2011. For more details about trade, import, and export activities with Mexico during 2009 and expectations for Mexico in 2010, please review our first article on our Blog.
2. How should my company view the current security situation in Mexico in terms of business travel to Mexico safe and recommended?
Answer: Honestly, business travel in Mexico should not be a real concern for foreign executives with the exception of certain pockets in northern and western Mexico – where drug cartel activity is apparently more evident. Traveling to Mexico City, Guadalajara, and the great majority of Mexico`s secondary cities and tourist areas should be safe and uneventful as long as one travels with natural prudence and care. However, like in any large city, crime can and does happen to foreigners and locals alike, and you can argue that Mexico City might be a little more unsafe than your average US city. And, while Mexico has problems with kidnapping, these problems almost always are Mexican to Mexican and foreigners have not been targeted, and it does not appear that this will change in the future.
The Mexican border area is dealing with some important security issues right now and therefore travel to Tijuana and Ciudad Juarez might not be as safe as the rest of the country, and care should be taken when traveling in these cities and in the Mexican border region in general. Likewise, traveling in some of the less-urban parts of western Mexico (Guerrero, Michoacan, Nayarit, Sinaloa) especially at night is probably not prudent at this time. The city of Monterrey is experiencing some especially tough security issues right now. While we think that traveling to the city and to and from business appointments and hotels during the day should be safe, traveling outside of Monterrey in the rural areas of Nuevo Leon or in route to the border, especially at night, is not recommended at this time.
3. How much of my interaction with Mexican strategic alliance partners or intermediaries can I do by phone?
Answer: Mexico is a face to face relationship type of country. As a result, some time needs to be dedicated to face to face interaction, especially at the beginning of the relationship and more often than not in Mexico and not at your home offices. Expecting to be able to get the attention of a Mexican company who you are not yet working with, by trying to set up a conference call prior to a face to face meeting, is problematic at best. Most Mexican companies are skeptical about business from the US coming through in the end, and their skepticism is strongest during preliminary stages prior to a first meeting. And, a subsequent trip to Mexico might be required to obtain final confirmation of interest and to sign a working agreement. Also, once a relationship is established, somewhat regular travel, at least twice a year, should be considered a requirement for success.
Monitoring what your Mexican partners and intermediaries are doing or not doing is very difficult to do without visiting the country and going on some sales calls. Likewise, you will probably find that with the Mexican tolerance for ambiguity and with their fear of being circumvented, Mexican intermediaries will not readily provide sales visit information nor helpful and clear monthly or quarterly sales activity reports. Business can be done over the phone in Mexico, but it has to be nurtured with visits, especially at the beginning of the relationship.
4. What restrictions are there if I sign a representative or distributor and I want to terminate the relationship?
Answer: Unlike in several US states or several Central American countries, there are really no barriers, restrictions, or hidden costs to terminating representatives or distributors in Mexico. Although business in the US with distributors or reps might be done with a hand shake and agreements on pricing, this approach is not recommendable in Mexico. First, clarity is important in these matters and doing business in Mexico is not like doing business in New Mexico or even Canada. And, with the Mexican tolerance for ambiguity, clarity needs to be established from the beginning. Second, without a written agreement, there is an outside chance that said companies or individuals, especially in the case of representatives and agents, can try to argue that there was a formal or informal/de facto employee relationship. To avoid this situation and possibly having to deal with a Mexican labor tribunal, a written contract will normally be sufficient to ensure that an rep or agent does not consider this option when being terminated. And, if not, the written agreement serves as the best of proofs that indeed no employee relationship ever existed. This is particularly important since employee severance pay in Mexico is considerable – see below for more details about this issue.
5. Do my products need to have Spanish labeling/packaging before they enter the country?
Answer: If your products are going to be sold into a retail-like environment with for resale to consumers, your products will need to meet one of three labeling standards before they can be imported into the country: (a) NOM 50 for all non-food products, (b) NOM 51 for food and beverages, or (c) a specific NOM related to your specialized product/importation category. However, if your product is being sold to an end-user directly, consumer or B2B, there is a waiver that can be presented that will allow for the foreign product to enter the country without complying with any of the above labeling standards. If a distributor imports a product for B2B resale, it can use this waiver as well to circumvent the requirements for both labeling and product certification NOMs.
6. What is a NOM?
Answer: A NOM is a standard that is required by Mexican law to be met (a) by domestic manufacturers before selling their product in the domestic market, or (b) by foreign manufacturers before importing their product into Mexico. A NOM can be in the form of a product certification, a safety certification, or a labeling standard. Some NOMs, called NMXs, are voluntary. Most NOMs are obligatory and public, unlike a UL certification which is not obligatory and private in nature. If a NOM applies to your product, you must obtain said certification before your Mexican distributor or retail or wholesale outlet is able import your product.
7. Is trademark registration recommendable and what is the process for obtaining
Answer: Mexico is not China in terms of trademark and patent violations, but it is a developing country and some copying and inappropriate name use does occur. As a result, it is recommendable to obtain trademark registration for your trademarks and logos. Trademarks can be obtained for 10 year renewable periods and the trademark authorities in Mexico, known by their initials IMPI, are reasonable to work with by Mexican standards. Trademark permits can be granted within 3-4 months, but normally take about 6 months to be granted with protection being extended during the registration process as long as the registration is granted at the end of the process. Patents however can and do generally take more than a year to process.