Ricardo Castro
Baker McKenzie
View from the Top

Changes to Keep Investors Interested in Mexico

Fri, 09/01/2017 - 10:30

Q: With talent scarcity becoming a problem for companies, how will this impact the country as an advanced manufacturing hub?

A: Mexico has proven throughout the years that its workforce delivers better results in terms of quality and cost than other manufacturing hubs. Today, Mexico is one of the cheapest countries in which to do business in comparison with other countries. Unfortunately, Mexico still has an area of opportunity in retaining the most qualified and talented employees, particularly with high-level knowledge and skills oriented to advanced technology operations. It is a common practice for Mexican automotive companies to hire CEOs, vice presidents, CFOs and COOs from the US, Canada and Brazil, among other countries, to run their operations in Mexico.

Q: How ready is Mexico to participate in R&D and engineering activities?

A: One of the biggest challenges that Mexico faces is that sooner or later, it will have to adapt its internal legislations in accordance with the automotive industry and how it is evolving toward a more technological future. Companies will have to take into account the investment that represents and modify the way in which they are operating in Mexico to incorporate new machinery and equipment by terminating part or all of their workforce.

Q: As manufacturing operations become more advanced, what role will alternative power generation play in the automotive industry?

A: Due to the current amendments that Mexico has made to its energy legislation, manufacturing operations will have a better environment to become more cost-efficient. To reach these savings, companies investing in Mexico must understand how regulations have changed and the way in which these amendments may impact their operations.

Q: What are the biggest challenges and areas of opportunity related to the development of the local supply chain?

A: The local supply chain suffers from a lack of legal certainty. Even though Mexico has changed its legislation with the aim of becoming more competitive and attractive for new investors, as well as established players, the automotive industry does not have enough incentives in terms of taxes, real estate and labor elements, among others.

OEMs and Tier 1 suppliers have been participating actively through the IMMEX in Mexico, analyzing the conflicts within the industry. The goal is to propose new incentives, amendments to the current legislation, as well as federal and local rules that apply to this industry. These activities are coordinated by the government at a federal, local and municipal level, taking advantage of the association’s experience and with the support of the corresponding experts in different areas, such as economy, tax, energy and labor, among others.

Q: What are the areas of opportunity to improve how companies invest and participate in the local market?

A: Mexico has different advantages when compared to the US and Canada in terms of the quality of their services, low labor costs and a legal environment that takes into consideration energy, real estate and labor. Every state in Mexico is somehow competing with the others to be the one offering the best and most incentives. Therefore, companies that are willing to invest in Mexico and those that are already established in the country have the opportunity to compare the different incentive packages the government offers. To make an informed decision, companies must be aware of the environment in Mexico and understand where it would be more suitable to invest in terms of logistics, tax, real estate and labor environment.