Mexico

Originally published: Nov-29-2006

Topics covered:

Full Name: United Mexican States (Estados Unidos Mexicanos)

Government

Federal republic made up of three branches: Executive -- president (chief of state and head of government); Legislative – bicameral; Judicial -- Supreme Court, local and federal systems.

People

Mexico is the most populous Spanish-speaking country in the world and the second most-populous country in Latin America after Portuguese-speaking Brazil. About 70% of the people live in urban areas.

• Population: 107.4 million (2006 estimate)
• Population growth rate: 1.16% (2006 estimate)
• Languages: Spanish

Legal System

The Mexican legal system is a mixture of US constitutional theory and civil law system with judicial review of legislative acts. Mexico accepts compulsory International Court of Justice jurisdiction, with reservations.

For commercial disputes, the Mexican legal system is fairly reliable. However, procedures are plagued by tardiness and considerable formalism. In practice, the system provides debtors many options to delay or suspend proceedings. Recognition of a foreign judgment takes at least one year in Mexico.

Beside ordinary proceedings (juicio ordinario) which are time-consuming and complicated, creditors can initiate an executive proceeding (juicio ejecutivo mercantil). Its aim is to secure the payment of claims arising from the presentation of an executable title (título ejecutivo), including documents like promissory notes, bills of exchange, checks etc. In the executive proceeding, immediately after the admission of the creditor’s complaint, the judge instructs a bailiff to serve notice on the defendant and request payment of the debt. If the debtor does not pay, the bailiff must proceed with the seizure of the debtor’s assets.

Court and Lawyer Fees: Lawyers fees are not fixed by statute. Contingency fees and fees on an hourly basis are common, depending upon the lawyer’s reputation and expertise. Court service is exempt from charges, but each party has to reimburse experts, witnesses etc.

Economy

Since the 1994 devaluation of the peso, successive Mexican governments have improved the country’s macroeconomic fundamentals. Inflation and public sector deficits are under control, while the current account balance and public debt profile have improved. As of September 2006, Moody’s, Standard & Poor’s, and Fitch Ratings had all issued investment-grade ratings for Mexico’s sovereign debt.

Despite these positive trends, prosperity remains a dream for most Mexicans. Rural areas are often neglected and huge shanty towns ring the cities. Many poor Mexicans try to cross the 3,000-km border with the US in search of jobs, and more than a million are arrested making the attempt every year.

Mexico is highly dependent on exports to the U.S., which accounts for almost a quarter of the country’s GDP and three-quarters of the country’s total exports. The result is that the Mexican economy is strongly linked to the U.S. business cycle.

Currency: Peso (MXN)

• MXN per USD: 11.04301 (on 11/28/06)
• MXN per EUR: 14.50212 (on 11/28/06)

Leading Markets (2005): US 85.7%, Canada 2%, Spain 1.4%

Leading Exports-commodities: manufactured goods, oil and oil products, silver, fruits, vegetables, coffee, cotton

Leading Suppliers (2005): US 53.4%, China 8%, Japan 5.9%

Leading Imports-commodities: metalworking machines, steel mill products, agricultural machinery, electrical equipment, car parts for assembly, repair parts for motor vehicles, aircraft, and aircraft parts

Top Industries: food and beverages, tobacco, chemicals, iron and steel, petroleum, mining, textiles, clothing, motor vehicles, consumer durables, tourism

Economic Indicators

(e) estimate (f) forecast

Comparative Economic Indicators - 2005

Source: IMF (International Monetary Fund) 2005 Data

Business Climate

Mexico’s trade regime is among the most open in the world, with free trade agreements with the United States, Canada, the European Union, and many other countries. Mexico is an active and constructive member of the World Trade Organization (WTO), and the government, as well as many businesses, supports a Free Trade Area of the Americas.

Protection of Property Rights: Mexico has a solid legal framework for intellectual property right enforcement, but lacks aggressive enforcement and prosecution. Many Mexican judges do not regard intellectual property crimes as serious offenses. Mexico has signed and ratified the World Intellectual Property Organization (WIPO) Internet Treaties – the WIPO Copyright Treaty and the WIPO Performance and Phonograms Treaty – that modernize the international system of copyright and related rights to deal with the challenges of the digital age.

Conversion and Transfer Policies: Mexico has open conversion and transfer policies as a result of its membership in NAFTA and the OECD. In general, capital and investment transactions, remittance of profits, dividends, royalties, technical service fees, and travel expenses are handled at market-determined exchange rates. Peso/dollar foreign exchange is available on same-day, 24- and 48-hour settlement bases. Most large foreign exchange transactions are settled in 48 hours.

Transparency of Regulatory System: The Mexican government has made progress on regulatory transparency in the last few years. New government rules and regulations must meet a variety of criteria, including: a clear justification for government involvement; evidence that potential benefits exceed potential costs; and proof that no regulatory alternatives are available that are less costly.

Corruption: Corruption has been pervasive in almost all levels of Mexican government and society. Combating corruption has been a priority, and government agencies at the federal, state and municipal levels are engaged in anti-corruption efforts.

Political Violence: Political violence has occurred only in limited regions of Mexico’s southern states. Potential investors should not find it a source of major concern.

Business and Cultural Practices

Mexicans place considerable reliance on personal relationships. Visiting businesspersons should secure credible personal (arranged by a mutual friend or appropriate professional) introductions to appropriate Mexicans in the organization where he or she wants to do business.

Xochimilco Floating Garden in Mexico

Appointments: Mexicans may treat appointments with foreigners as tentative until they know the person is actually in Mexico. Therefore, call from the hotel on arrival to confirm appointments or send confirming faxes.

Punctuality: Time is flexible in Mexico, so don't be offended or surprised if your contacts in Mexico don't show up in timely fashion. However, the English (or English speaking cultures) are so well known for their punctuality that in Mexico, there's a saying people use after agreeing a time with you: "Hora Inglesa", literally translated means "English Time", the inference is that the time agreed should be strictly adhered to.

Decision Makers: Mexican businesses tend to be very hierarchical. If a Mexican firm's top managers are present at a meeting; they will expect the same from your firm, and will be insulted if subordinates are sent to meet with them.

Attire: Mexicans dress formally for business meetings with suits and ties, and will expect visitors to do the same. The exception is if the meeting is being held in a very hot region or climate, for instance Acapulco, where meeting attire tends to be smart informal; formal shorts and short sleeved shirts (not T-shirts) are acceptable.

Names: In Mexico, people have three names: First name, Paternal name and Maternal name. Written, they will use all three (or the third will be often abbreviated with the first letter), but verbally they will use the first two. For example, Maria Vazquez Laredo would introduce herself as Maria Vazquez, or Señora/Señorita Vazquez.

Titles: Titles are extremely important. Professionals with a degree are not referred to as Señor or Señora/Señorita, but with their title: The most common titles are: Licenciado/a (Professional e.g. Lawyer, BSc, etc), Ingeniero/a (Engineer) Doctor/a (Doctor), Arquitecto/a (Architect). If you are unsure whether they have a title (a business card should always carry it) then you should assume a title and use the one that is most likely to represent their trade.

Greeting Protocols: When introduced to a man or woman, a formal handshake is required. Physical contact is essential - never just stand there and say 'hello, nice to meet you'. Don't let any personal reserve you might have interfere with this process: it is essential to gaining people's trust and understanding in Mexico.

Meetings: Mexicans are a creative people and generally don't like the constraints that US/European-style meeting formats – checklists and formal agendas – tend to have. Be prepared for your meeting format to follow a haphazard pattern, with subjects changing various times and tangents commonplace.

Also note that a meeting should always begin with small talk. Topics might include a friendly enquiry about the host’s family, the weather, latest fashions, and Mexico's areas of outstanding natural beauty.

Negotiations: The most important thing to remember is that the relationship must be developed first. If you do not take time to develop a relationship - a friendship - building rapport and trust, then you may as well not be in Mexico on business.

Credit and Collections

• Collection Experience: Good-Fair
• Exchange Delays: 2 months
• Preferred Credit Terms: Unconfirmed Letter of Credit
• Minimum Credit Terms: Open Account

Arbitration: Mexico has ratified the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards and has adopted the UNCITRAL Model Law on International Commercial Arbitration.

Risk Assessment

Coface Country Risk Rating: A3 - Adverse political or economic circumstances may lead to a worsening payment record that is already lower than the previous categories, although the probability of a payment default is still low.

Ducroire Delcredere Political Risk Rating: 1 – Low Risk
Ducroire Delcredere Commercial Risk Rating: B – Medium Risk

Sources for further information on doing business in Mexico

Country Profile - Mexico (July 2006): Publication of the Federal Research Division of the Library of Congress. Includes overviews of Mexico’s history, geography, people, government, economy, as well as information by industry sector. (PDF)

Mexico Connect Business: Articles and links to assist businesses interested in exporting to or setting up in Mexico.

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This information is provided by ABC-Amega Inc. Providing international receivable management and debt collection services for exporters to more than 200 countries including Mexico. For further information, contact info@abc-amega.com.

This report represents a compilation of information from a wide variety of reputable sources including: the U.S. Department of State, U.S. Commercial Service, CIA World Factbook, Federation of International Trade Associations, and Economist Country Briefings.

Risk Assessment information: Provided with permission by Coface Country Rating. Also Belgian credit insurance company Ducroire Delcredere

Information on credit terms and the probability of prompt payment are provided, with permission, from Overseas Press and Consultants (OP&C) as published in IOMA's Report on "Managing Credit, Receivables & Collections," September 2006.