Puerto Peñasco is a diamond in the rough; the potential for growth is amazing. Being Arizona’s “beach”, many have opened or plan on opening some sort of business. Many questions and concerns may come to mind when thinking of opening a business abroad. Among the things you need to consider before opening a business in Mexico is the difference in mindset, the red tape involved in everything in Mexico.
The key to successful operation in Mexico by a US Citizen/Company is finding the correct hybrid combination of American leadership with Mexican management. Of course like any other business around the world, there are three elements that you must never forget to oversee. SUPERVISION, SUPERVISION, and SUPERVISION.
When I look back and analyze successful clients, specially, Maquildoras or Assembly plants in Northern Sonora, I always come to the conclusion that the right combination of American leadership and Mexican Management brings out creativeness like no other, making companies with this synergy more effective and efficient, and obviously successful.
Yes as you start a business in Mexico you may encounter an endless amount of challenges, you might even be discourage to continue with your efforts. Throughout my years as a consultant, the biggest challenge to overcome is the culture shock; trying to force the “American Way” into a Mexican culture is the biggest mistake many make. I almost felt prey to this challenge back in my early days when I started working in Mexico. I was about ready to call it quits after six months, but I decided to continue and slowly I’ve began to understand or accept the Mexican way of doing business. I have found that I can offer consulting services as well as tax, audit and other services in Mexico and have a successful career. I’ve also learned that there are more opportunities in Mexico for entrepreneurs as there is less competition in many areas in Mexico.
The more you try to force the “American Way” the more resistance you will encounter.
Before you embark with your business in Mexico, talk to others who have been there before you; hear what successful entrepreneurs have experience and learn from the mistakes of unsuccessful entrepreneurs. Do not be discouraged! It is possible to be successful; it’s a matter of learning and accepting that not everything is done as it’s done in the U.S.
As an Arizona Licensed CPA practicing in Mexico I have been involved with many US companies starting business in Mexico. I always try to make my clients understand this simply principle of accepting that forcing the “Ameican Way” can be a trap that deters the success of a starting business.
Today I will only write about one of the most common traps. Labor issues, a topic that has always plagued Mexican businesses.
Labor issues seem to be one of the most common traps for both novice Mexican entrepreneurs and Non-Mexican nationals face when starting a business. As you may or may not have heard, Mexican labor laws protect employees more than employers, thus always placing the burden of justifying an employee contract termination on the employer. Mexican labor law protects employees from unjust contract termination. This is a critical area to understand as it is easy to make the mistake of terminating an employee thinking management has a reasonable cause for terminating the employee, but if the correct steps are not followed, regardless of the reasons why you are terminating an employee, you might end up paying the full severance, including back wages.
Currently severance is an automatic 90 days of wages/salary, plus 20 days of wages per each year an employee has worked or part thereof, plus 12 days of wages per year worked capped at twice the current minimum wage.
In order to terminate an employee an employer must document properly all of the employees’ mishaps. Among the reasons for terminating an employee, are attendance issues, punctuality issues, theft, physical and verbal confrontation, working under the influence of alcohol or any other illegal substance, not following employee handbook guidelines, and the list goes on. Many make the mistake of terminating an employee for committing any of the listed reasons under Mexican labor law and forget that in order to terminate an employee we must not only document the reasons properly, but file the documentation with the labor board before continuing with the termination process. Always consult your labor attorney or someone to help with the process.
Being involved in Nogales, Sonora Maquila Industry, a city with close to 100 manufacturing plants, most of which have US citizens working in Management, Finance or Production, I have seen over and over the mistakes that some of these companies make. Mexican Labor laws protect anybody working physically in Mexico, regardless of nationality, and race. Many corporations make the decision of terminating one of their expat employees and end up with a big lawsuit. Many allege that the employee is paid from the US entity, thus thinking there is no employer-employee relationship in Mexico. Many Americans that have been terminated by their US parent company file suit for wrongful termination and end up winning and/or negotiating their severance.
The most significant evidence that helps a US terminated employee is the working VISA or FM3 which usually states the position and company to which they work for in Mexico, add any other contract, memo, email or document that literally states that the agreed upon employment is in Mexico and the Defending company has very little to defend.
There is currently a strong movement to amend the Mexican Labor Law to be able to make Mexico more competitive for foreign investment, but attempts to make these strict labor laws more corporate friendly have been opposed by unions and other political interests. I hope Labor Laws do change in the near future to make it easier for business to invest in Mexico.
Before you embark or think of opening a business in Mexico, do your homework, find the correct consultants, legal, tax, labor, customs experts. Do not go with the first person you talk to, ask for references and or prior clients, and most definitely do not elect your consultants based on price. On the following issue, I will talk about tax structure and other general implications of taxes in Mexico. I hope you enjoyed my first article in Rocky Point Times. Until next time!
Luis A. Torres, CPA