South America is a growth market. Brazil and Mexico in particular are showing increasing growth rates. Why are these regions like Mexico so popular?

David McQueen: Mexico has a number of prerequisites that make the country attractive to foreign investors. Firstly, of course, there is its proximity to the United States. In addition, Mexico offers comparatively low barriers to entry and more free trade agreements than any other country, including direct access to the US market through NAFTA and its replacement, the USMCA free trade zone. In addition, Mexico is investment-friendly, allowing companies to be 100% foreign-owned.

Mexico is also well positioned when it comes to skilled workers. The population - Mexico has 126 million inhabitants, making it the third most populous country in the Americas and 10th in the world - is very young, with an average age of 28, and the proportion of the working-age population is growing steadily. Last but not least, Mexico has a competitive infrastructure.

Automotive and aviation companies have settled in Mexico. Suppliers are following. How do you support companies that want to set up production in Mexico?

David McQueen, Director Consulting Services at Tetakawi © Tetakawi

David McQueen: Tetakawi offers a range of services to help foreign companies evaluate the opening of their own production facilities in Mexico and to set up and operate their own production sites. Our services lower costs, accelerate implementation and reduce risk.

At one end of the scale, we are a valuable source of data and information for analyzing and planning an investment in Mexico. We help companies make fact-based decisions by providing expert advice, supported by real-time data from our numerous operations and our research teams.

At the other end, for those who choose to invest, we can offer a turnkey package in one of our production centers that includes full administrative support from HR to import/export. Companies that opt for this service retain their brand identity and control their production processes, but we take care of the rest.

For those who require less support, we can offer individual services tailored to the requirements of each company.

Companies that use our services can also take advantage of the Mexican government's development program. This allows companies that meet certain criteria to operate without a permanent establishment in Mexico for up to eight years. During the first four years, the company is also exempt from Mexican corporate income tax.

Observe country-specific conditions

What are the most common mistakes that German companies can make in Mexico?

David McQueen: The most common mistake many foreign investors make is not understanding the local culture sufficiently. There are many ways to do business and manage people and relationships in Mexico that are not difficult to learn or implement. But failing to consider these in advance can lead to high turnover and poor decisions.

The second most common mistake is working with the wrong partners. While there are many companies like ours that offer reliable expert advice and support, there are also a number of individuals and companies with questionable reputations. While they claim to be able to help with setting up and running a business in Mexico, they are in fact unable to do so. At worst, they are fraudulent. Many companies have been guided by supposedly reliable managers and consultants, only to find that they have been seriously misled.

The third mistake some companies make is not reviewing their supply chain 100 percent before making a final decision on a facility location. Not all goods and services are available throughout Mexico and some are not available at all, so it is important to evaluate the logistics of the supply chain before finalizing the location of a facility or making an investment.

How safe is the country for foreign investors and their employees?

David McQueen: Mexico is generally a safe country for foreign investors and their employees. The cities in the industrialized areas of Mexico outside the immediate US border region are generally as safe as most major US cities - some even safer. While drug-related crime is high in Mexico, it is concentrated in very specific local areas, does not target foreigners, and tends to occur outside of major cities. The area within 100 km of the border with the United States is more problematic due to the frequency of drug and human trafficking. However, many foreigners cross and visit this area every day without any problems. Foreign visitors (40 million per year), who take appropriate precautions and avoid the known high crime areas, only exceptionally witness or fall victim to illegal activities.

Uncertainty factor Trump - problem or not?

Trump is a major uncertainty factor for the region. Why is it still worth setting up production?

David McQueen: The unpredictability of President Trump's actions is creating a climate of uncertainty worldwide. However, Mexico remains a very attractive location for foreign companies looking to enter the North American market or to offset the risk for products exported from China to the US. The USMCA, which will replace NAFTA, is Trump's project and Mexico has now ratified the agreement. The agreement will not only guarantee Mexico access to the US market and prevent additional "national security" tariffs from the US, but will also increase requirements on vehicle manufacturers outside North America.

In terms of the risk of new tariff negotiations by Trump, it seems that the clear reaction of the Republican senators from Texas and Arizona to the recent threats has made it clear to Trump that he can also expect resistance from within if he wants to disrupt or even interrupt two-way trade between Mexico and the US.

Given the high degree of integration of the markets in North America, it seems unlikely that a real trade restriction would make sense. The most likely outcome in this case would be recessions in all three countries (Texas, Arizona and Mexico) - which even Donald Trump is unlikely to want.

How do you assess Mexico's future economic and political development?

David McQueen: Politically, Mexico has an established democratic system. The election of Lopez Obrador initially raised some concerns, but so far he has respected democratic institutions and governed with a mostly moderate hand. Corruption, particularly at lower levels of government, is still an issue in Mexico, but the presence of a functioning party system that offers voters real options will hopefully help to further reduce the levels of cronyism and corruption.

From an economic perspective, Mexico is heavily dependent on the economic situation in the USA, reflecting the upswings and downswings there. As far as the Mexican economy is concerned, we expect continued moderate growth, primarily through foreign investment. President Obrador has reversed some of the steps taken by previous governments in areas such as the energy sector, but has mainly supported investment in the manufacturing industry. This is because with a growing labor force (the entering cohort exceeds the age cohort by around 1 million people), Mexico needs jobs. The increase in the working population tends to dampen wage inflation, but real wage gains are still being achieved and disposable income is increasing.

Which industries are particularly strong in Mexico?

David McQueen: The automotive industry in Mexico is very strong and closely integrated into the North American supply chain. Aerospace is also relatively strong and also integrated with North America. Other manufacturing sectors that have a strong presence in Mexico include household appliances (white goods), electronics (Mexico is the world's largest producer of flat screen televisions), heavy trucks, recreational vehicles, agricultural equipment, medical equipment and food processing. Major primary industries include petroleum, mining and agriculture.

Specialists and contacts in Mexico

Which development partners are there in Mexico?

David McQueen: Development companies like Tetakawi can be an excellent source of free advice and referrals to other reliable development companies and consultants.

There are a number of competent real estate agents and development companies that can help with finding or building a facility. Many of the international brokerage houses are active in Mexico, but there are also national and local agents who can provide excellent support and advice.

Since the closure of the Promexico government agency by President Obrador, which used to support foreign investors, consulates and embassies now offer this service. This is no longer as comprehensive as it used to be, but can still be helpful for investors.

Each state in Mexico also has an economic development office that can assist with local information and investment incentives. Some are better and more active than others.

There are a number of international law firms and accounting firms that specialize in Mexican business transactions. They can offer both advice and support, especially when it comes to the translation of Spanish legal documents.

What is the situation with skilled workers in Mexico?

David McQueen: Global economic growth poses a challenge in terms of recruiting and retaining employees in Mexico as well as in other countries around the world. But in most local markets here, it is possible to find and retain competent employees at all levels.

The steady population growth in Mexico ensures an annual influx of new workers, many of whom have a specialized college or university education when they enter the workforce.

Engineering and management schools are plentiful and of good quality. Many focus on manufacturing, making it easy to find dedicated, enthusiastic young graduates at a reasonable cost.

German-style vocational training is beginning to establish itself, having mostly relied in the past on specific qualification measures combined with unstructured learning on the job. The skilled trades can therefore pose a challenge, particularly in specialized areas such as tool and mould making. People are sufficiently available, but assessing their qualifications requires a certain amount of care.

Experienced, competent managers and executives are available at all times and are able to manage a Mexican facility even without a foreign "expatriate" manager on site.

Entry-level staff are always the easiest to find, while experienced staff are usually less mobile and more difficult to recruit in a short space of time.

What funding opportunities are there?

David McQueen: The Mexican government offers foreign companies a special legal form that allows them to avoid income tax for four years. Exporting companies can also avoid value added tax.

Depending on the state and the size of the investment, incentives may include subsidized building land (usually unserviced), training assistance and assistance with start-up costs. In some cases, there may be a partial exemption from property or state payroll taxes.

The most utilized and easiest to obtain incentives are education and training. The total value of incentive offers is usually not large unless the investment and employment by the investor is significant.

European companies may also be eligible for EU funding for training and infrastructure investments in Mexico.