Validity of Import and Export within Mexico - Term Paper Example

? Validity of Import and Export Within Mexico Validity of Import and Export Within Mexico Mexico is an ideal choice for U.S. companies when considering foreign trade. The country is democratic with a stable government and a fairly strong economy. Mexico shares a lengthily border with the United States making overland trade both affordable and convenient. Furthermore, the business culture and environment is fairly similar to operations within the U.S. as well as the country being bound to the North American free trade agreement (NAFTA), which allows U.S. firms to export to Mexico or set up operations within their borders without penalty of high tariffs or other forms of import taxes when bringing products back to the U.S. There are several areas a company should focus on when establishing trade within Mexico. Chief among these are governmental, security, and management regulations and strategy. If conducted in a professional and carefully planned manner, trade should be problem-free. Cultural determinants are crucial when expanding business into a foreign environment. A clear understanding of how the business environment and consumer culture operates needs to be a priority if a successful business endeavor is to be taken. Mexico has a hierarchical society, meaning people accept and follow a hierarchical order. On the grander scale, everyone has a place within its society and this can be observed particularly within the business structure. In Mexican organizations, centralization is the most popular choice of company structure. Subordinates expect to be told to do things without question and the manager or boss is considered a strict figure of authority whose decisions should not be questioned. The society in Mexico is also a collectivistic society where loyalty in member groups, family, and friends overrides most other societal rules and regulations. There are strong relationships among employees and coworkers as they take responsibility for each other, within the ‘member group’. (U.S. Department of Commerce, 2012). According to the organizational researcher, Geert Hofstede, if the majority of organizations within a country display competitiveness, assertiveness, ambition, and the accumulation of wealth and resources, then the nation is considered a masculine nation. While more feminine nations display a focus on relationships and quality of life rather than being focused on competitiveness. From this description, Mexico is classified as a masculine nation, as individuals have an important focus on occupations as a lifestyle and collectively promote economic growth and prosperity. Mexican people in general have a very high preference for uncertainty avoidance. There is an emotional need for rules. For the most part, employees work extremely hard and precision and punctuality are the norm. Job security is an important individual motivation element and in this way the masculine definer is displayed further. Mexican people hold an affinity in fulfilling social obligations and a strong desire in maintaining "one's face" - leading to a mostly non-confrontational and professional work environment. (Luis Chavez, 2012). Business and professional relationships within Mexico also promote personal relationships. Great courtesy is of importance business is conducted. Personal questions enquiring about the person's well being, family, and friends are launched into conversation regularly. The concept that "time is money" is more of a secondary concept to common courtesy. Diplomacy and conversation are of more importance than "getting down to business". Being aware of the governmental policies prior to operation within Mexico is key to business success. To begin, labor law in Mexico is complicated and particularly orientated toward the employee's benefit. Seniority and indemnity payments are subject to special treatment within the law. Therefore, when acquiring any form of participation in Mexican companies, the complete potential labor liability for indemnities must be taken into consideration, as it is rarely recorded in company's books. Secondly, in the past the effects of inflation used to be recorded for accounting and tax purposes. Today, these are purely recorded in accounting books. Therefore, inflation continues to be taken into account when determining how much a business will be taxed. Thirdly, the Mexican government provides equal treatment to both foreign and domestic investors. There are several tax incentives available, along with various incentives on research, and grants on development expenses and machinery and equipment development. This last incentive is of particular interest to foreign businesses looking to expand into Mexico. In the field of import and export it could mean a large cost reduction in setting up a base on Mexican soil and purchasing equipment. (Luis Chavez, 2012). There are several security concerns that would affect the decision to do business within Mexico. One of the major risks to consider is the physical security. Over that last several years internal security conditions have deteriorated. The Mexican government stepped up its battle against the well-organized drug mafia at the end of 2006, and since then they have seen more than 35,000 casualties. Furthermore, kidnapping has quadrupled since 2006. As the violence increases, despite the containment efforts of the police and security forces, public support for the government’s actions is waning. The problem is additionally contributed to by political corruption. It has been reported over several years that the allegiance of many government officials and police seniors has been bought through bribes. As discouraging as the crime is, fortunately the drug violence seems to be concentrated in just a few areas. In 2008, more than 60% of drug related crime took place in Baja California, Sinaloa and Chihuahua and within those states killings were reportedly concentrated in three cities: Tijuana, Culiacan and Ciudad Juarez. With the majority of the drug related violence concentrated in a specific geographical area, it is relatively easy when setting up business to know what areas would be wise to stay clear of. The violent areas along the U.S. and Mexican border would potentially be areas to avoid setting up physical outlets, with a more positive outlook on the larger cities inland. The best strategy, would be to select the most economically sound area out of the remaining non-violent areas. (Luis Chavez, 2012). In order to make an importing and exporting business successful, proper planning will be essential. This will need to be done at the early stages before engaging in any transactions, as this will save a lot of money, frustrations, and time. In addition, planning will help identify the deficiencies in the business model. The planning stage will need to comprehensively analyze the risks, logistics, legal, and financial computations involved. Accountants, IT specialists, lawyers, and local experts should each have determined responsibilities when conducting the business plan. Lawyers will provide the legal advice in relation to international trade laws, export and import policies, and taxation policies. Accountants will ensure that the budget is accurate and is directed to its intended use. IT specialists will facilitate efficient and effective operations in the business. This will involve networking, technical advice and necessary interventions. Finally, local experts will be able to provide advice on Mexican law, business practices, and culture in order to guarantee smooth operations. Furthermore, a study should be conducted that studies the current competition within the foreign market. This will provide an understanding that will facilitate the marketing of the business. In order to streamline the initiation of business within Mexico, several convenient options would be considered. Firstly, with the help of several local agencies, market research would be conducted. Appropriate business contacts would be found and a complete review of Mexican import and export regulations would be analyzed in order to seize potential opportunities and overcome and challenges. Secondly, it would be highly recommended to attend or participate in any government or private trade shows within Mexico. This can serve as a way to connect with local businessmen, agents, distributors, buyers, and even create awareness of the competition. Thirdly, the U.S. Commercial Service offices are a great resource when seeking advice or making local connections. Their three offices located in Mexico City, Guadalajara, and Monterrey can access the market potential of the product intended to import or export. They can also provide advice on export and import strategies and facilitate business agreements with potential contacts and clients. (Tax and Legal Services PWC, 2011). Mexico is an attractive business destination and the culture of the people allows for a reliable workforce. Labor wages are much lower than those of the U.S., which provides an advantage to investor. Improved labor laws also make Mexico a more attractive business destination. The culture is quite respectable, and the people as well. Mexico has grown since NAFTA came into play and hopes for further growth of the country are present. Overall it appears that the move into the Mexican market would be a solid move for a company. The country has solid economic policies. Their budgetary and monetary policies are robust and they have a strong financial position in the public sector. Although lack of structural reforms impedes stronger growth, it is mostly due to the current political situation, and will most likely improve over the next decade. Despite a solid short-term economic policy, the economy suffers from overall structural weaknesses, but it is steadily improving. Mexico has a stable democratic government, a steadily growing economy, the energy necessary to operate a business, and a market with a high demand import and the means for cheap export. References Luis Chavez. (2012). Mexico exporter guide. Foreign Agricultural Service Journal. (12). 1-12. Tax and Legal Services PWC (2011). Nuclear suppliers doing business in mexico.  Publicaciones, 61-69. U.S. Department of Commerce (2012). Doing business in mexico. U.S. Commercial Service. 1-3. Read More