Conducting business overseas presents its own set of challenges and risks, but with a proactive plan you can decrease the risks and build valuable resources that can lead to a favorable result.. This is especially true when it comes to doing business south of the border.
One of the biggest growth areas for U.S. companies doing business in Mexico is manufacturing. Labor costs are low, importing and exporting between the two countries is fairly seamless and the growing middle class in Mexico provides great market potential for new customers.
At the same time, stereotypes about Mexico combined with hyperbolic media portrayals deter many companies from pursuing business opportunities with our neighbor. These perceptions also prevent many lenders from extending credit. As a result, many companies considering an entry to markets south of the border won’t pursue it. In this article I will examine some of the pros and cons, and offer recommendations to help reduce the anxiety and risk that comes with the territory.
Many lenders firmly believe that if a debtor in Mexico wishes to default they can do so and get away with it. However, limiting credit to Mexican account debtors means missing out on the opportunity to expand into new markets. There is a safe way to do business in Mexico while minimizing the risk of losing money.
The good with the bad
One of the biggest disadvantages to consider when doing business in Mexico is its poor legal infrastructure. While there is regulation and accountability for judges, the court system suffers from shortfalls in funding and synchronization. In addition, attorneys in Mexico are not required to uphold the same level of regulation, accountability and training we are accustomed to in the U.S.
As a result, it is important for U.S. companies to establish specific terms of business and credit limits prior to forging agreements that allow business with organizations based south of the border. Taking time to lay the proper groundwork will allow business owners and managers to expand into a new marketplace, while protecting their company from risk. The U.S. Department of Commerce’s International Trade Administration provides a range of services to U.S. businesses including customer legitimacy through the Trade Information Center of the U.S. Commercial Service. If you are constrained for time during the verification process it may be worth hiring a reputable attorney in Mexico that specializes in U.S. exportation to investigate the customers’ Public Registry of Property and Commerce.
Once you confirm the legitimacy of a potential customer you can obtain credit information from the Mexican Credit Bureau. The challenge here is that in order for the Bureau to share information the customer must provide the information to the Bureau.
In addition to outlining specific terms and conditions within the debtor’s application, it is also advised to utilize a type of promissory note referred to as a pagaré. This will help mitigate the risk and allows for an executive proceeding upon litigation.
It is the creditor’s responsibility to reevaluate the debtor on a regular basis to decide if any other measures should be taken to protect the creditor’s collateral. In addition, Arizona-based B2B e-platform, BIEN (Building an International Economic Network) is a great resource and tool that benefits those striving to do more business with debtors located in Mexico and Canada. The platform also allows companies to locate and contact one another to share best practices, find services and sell products.
Before considering a move into Mexico or any new market, research is essential. Every country and business venture carries its own set of risk and challenges. Learning the ins and out of the country’s business infrastructure, its cultural practices and legal nuances will help provide a clearer plan for expansion. Finally, taking these additional measures and establishing credit limits for companies in Mexico will protect your investment.
