Auerbach Intl

Phone: (415) 592 0042
Auerbach-logo

Advantages of Mexico, with Richardo Franco Romo of PRODENSA

Ricardo Franco Romo

Ricardo Franco Romo, Global Commercial Director of PRODENSA, explains the many advantages of setting up operations in Mexico, a significant investment destination for US and foreign companies due to its strong economy, stable macroeconomic factors and vastly improved infrastructure. In 2023, Mexican exports were $500 billion with 86% coming to the US.

Ricardo also shares the many special bonuses that employees receive; issues of corporate governance and taxation; and various HR laws for vacations, maternity/paternity leave, healthcare, among others. As a largely top-down, paternalistic work environment, the family plays a key role in employee retention programs (such as grocery coupons) and bonuses paid for punctuality and transportation.
Culturally, the concept of time (“Ahorita”) has multiple meanings and East Asian manufacturers, especially Koreans, face particular challenges. Nevertheless, the workforce is extremely productive; technical talent is abundant and growing; the threats of bribery and extortion are real but less than 2% of GDP; and salaries/wages remain far lower than in Europe, the US or Canada.

Highlights:

{01:57} The benefits for companies to set up operations in Mexico

{08:21} Maquiladora factories in Mexico

{14:38} Mexican laws foreign investors need to be aware of

{21:48} Cultural issues in Mexico

{30:26} Top-down cultures in Mexico

{31:55} The most difficult countries PRODENSA counsels

{42:35} The fear of bribery, extortion, kidnapping, etc. in Mexico

Ricardo Franco Romo bio:

Ricardo Franco is the Global Commercial Director of Grupo PRODENSA, a firm that has helped with the start-up or expansion of over 1000 projects in Mexico and operates in 25 countries. PRODENSA’s services involve establishing inbound manufacturing operations, handling HR and taxes, regulatory compliance, job hiring, and many other functions.

Ricardo holds a degree in Global Business from the University of Monterrey in Mexico. He brings over ten years of experience in business development and attraction of foreign investment. Ricardo specializes in strategic planning for the growth and establishment of manufacturing and service companies in North America. He is a global speaker, addressing topics such as foreign investment, new business creation, talent attraction, and global mobility.

Connect with Ricardo:

Listen Here

Ricardo Franco Romo

Share on Social Media

Hear more episodes: https://auerbach-intl.com/podcasts

Learn more about Auerbach International: https://auerbach-intl.com

Get free quote: https://auerbach-intl.com/get-quote/

Global Marketing requests: globalmktg@auerbach-intl.com

Get the insurance settlement you deserve: www.IGICworldwide.com

Business intelligence and growth: Rainmakers’ Forum Report Order Form

DanSing Pancakes. Great song and book to teach kids to resist drugs, drink and smoking … and to make healthy life choices: www.DanSingPancakes.com

Build the strategy, connections, and roadmap to enter the U.S. market with WorldUpstart’s Accelerator.

Mastering Cultural Differences offers consultation and training solutions for culturally diverse organizations that want to implement successful and long-lasting diversity, equity, and inclusion initiatives. The end result is an organization where employees feel valued, respected, and want to stay.

To learn more about Mastering Cultural Differences and the programs it offers, click here

Mastering Cultural Differences, The Global Academy is an online program designed to help you recognize the cultural differences impacting your organization so you can work more effectively across those differences.

This program is for you if (1) you want to know exactly when cultural differences are at play in your cross-cultural interactions, and (2) you want to learn how to adjust your behavior to the cultural orientation of your employees and clients so you can avoid misunderstandings or potentially embarrassing moments. You will go from feeling fearful and confused to having clarity and certainty when you are working across cultures.

To learn more about Mastering Cultural Differences, The Global Academy, click here

To register for the Global Academy, click here.

*** For Global Gurus listeners only, enter the coupon code GG50 for $50 off the course registration.

Facebook: https://www.facebook.com/auerbach.intl

LinkedIn: https://www.linkedin.com/company/auerbach-international

YouTube: https://www.youtube.com/channel/UCbb1Tq_Xm5c7l6qBitF78Dw

What Global Gurus subjects would you like to learn (more) about?

[email return to Philip@Auerbach-Intl.com]

Full Transcript

Hello everyone. Since today’s guest comes from Mexico, I thought it would be appropriate, of course, to have a blooper from Mexico, a mistranslated sign, and this is a perfect example of words that are used incorrectly or words that are mistranslated, as well as a perfect example of why AI (artificial intelligence) does not work well in situations like this. So the sign is in an Acapulco restaurant, and it says very simply in English that “The manager has personally passed all the water served here.”

So with that double meaning, today’s guest is Ricardo Franco. Ricardo is the Global Communication Director of PRODENSA, a firm that has helped with the startup or expansion of over 1,000 projects in Mexico and operates in 25 countries. PRODENSA services revolve around establishing inbound manufacturing operations, handling HR and taxes, regulatory compliance, job hiring, and many other functions. Ricardo holds a degree in global business from the University of Monterrey in Mexico, and he brings over ten years of experience in business development and the attraction of foreign investment. 

Ricardo specializes in strategic planning for the growth and establishment of manufacturing and service companies in North America, and he is global, addressing topics such as foreign investment, new business creation, talent attraction, and global mobility. It’s quite a wonderful resume. 

Welcome, Ricardo. Delighted you are with us.

Thank you. Thank you. Very much Philip. Thank you for your help. I’m delighted to accept the invitation.

So, let’s start with some of the obvious benefits for US or foreign companies to set up operations in Mexico.

I mean, it’s a broad aspect, but we need to see this as a whole region. Mexico has been one of the US’s closest commercial allies for the period of history between both world wars and recently after the Second World War, we have seen economic development in both areas, but it’s important to know when it becomes an important factor for investment. When we have the “maquiladora” agreement, we will address that later. 

When we begin this phase, this phase of globalization, companies begin to look for where they can produce their goods, where they can produce their services, where they can provide their services at a lower cost, or where they can get closer to their final market in an easy way. This is when companies started to arrive in Mexico. 

Now after ‘90 to ‘93, this is all of the context and the general context of why there are obvious reasons to come to Mexico after 1993. We have NAFTA  [North American Free Trade Agreement] in place. The real flow of investment started to flow. Mexico has an economy where more than 30% of the economy is based on the manufacturing of products, and we have been growing based on the production and integration of complex products to address the US markets. Mexico has an economy that has been developing, and right now more than 20% of the economically active population works directly within the manufacturing industry.

So, what we see here is a strong economy that has had stable macroeconomic factors for over 20 years. We are talking about a 3% inflation rate. Given that, and also the talent availability. Combine all of the factors for a long-term project for companies that are looking to access the North American market. And if we see Mexico as an open place for business, we start with the fact that Mexico has 13 agreements with more than 50 countries, and that creates an open place for companies to engage and access. I mean, we see that 86 percent of the exports from Mexico are to the U.S. 

And actually, this year it’s important to mention that Mexico became the biggest commercial partner with the US, surpassing China by more than 50 percent. Given this factor we are close commercial allies, and now that we see this growing number of investments. Companies started to find in Mexico not only cheaper labor or cheap costs but also a good environment for growing and sustainable businesses, long-term with a strong supplier base, a good logistic factor, and a good logistic cost… and also, when we are talking about the integration of these commercial agreements between the countries that enable the flow of all of the supply chain to integrate into one place and get access to this market.

I want to give you some numbers about how it’s growing in the aerospace industry. We were in Paris in June for the Paris Air Show, and during 2020-2022, 132 aerospace companies were established in Mexico, and we’re talking about an increase in the number of economic units of about 18%. 

You can see the history. If we put all of these in numbers, in 1993, when we started the NAFTA agreement and when we started to see that Mexico has a good potential for economic development, the total value of the exports from Mexico was US $33 billion. Right now in 2023, the total value, including 2022, will be more than $500 billion; we’re talking about a ten-fold increase of that investment.

So, summarizing all of the factors, we’re talking about a solid economy with stable macroeconomic factors. We are open to doing business with a lot of countries and integrating that supply chain. Logistics costs are efficient, and we have a solid infrastructure already in place. Over the last 20 years, the Mexican government has invested a lot in the highway networks and the railway networks, and it has recently invested in electrification. The power and electricity of the energy sector has the capacity, and it has one of the most advanced distribution networks. I’m not talking about production, but distribution networks that are also interconnected with the US. So, all of these are great tools for companies to find a long-term business plan.

That’s fascinating. Obviously, a lot of wonderful statistics and a lot of factors that I was not aware of.

You mentioned at the beginning of your presentation about Maquiladora. It’s one of the incentives for companies to move. Maquiladoras, for people who don’t know, is a factory in Mexico. Many American businesspeople have heard the term; foreign business people perhaps have not, but Maquiladora is a factory in Mexico that is set up to export its products to the investing country. 

So, in many cases, these are US firms that are investing, and therefore the exports return to the US. As you said, about 82% of Mexico’s exports do come to the US. Are these Maquiladora factories primarily along the US border, or are they scattered throughout the country? 

This is a good question. If we go back almost 60 years, in 1965, we had the first agreement, which was in Spanish:  Política de Fomento a la Industria Maquiladora de Exportación. The government was to enhance the exportation of products through Manufacturing, and that program was created in the 1960s. The idea was to bring companies to poor companies to operate and add value, and we can create jobs, jobs within the border, and get access and increase the partnership with the US. That was the original part.

However, in 2006, we put in place one of the largest programs for this maquiladora in Mexico – IMMS. This program is an incentive for manufacturing companies to come to Mexico, establish a facility, and import temporary raw materials and components from all over the globe without any tariffs and without any tax burden. Transform and create the product and export directly, taking advantage of and benefiting from the US and Canada agreements that we have in place. 

Before that, it was an after-tax agreement so companies could arrive in the country and establish operations, but without paying the tax in the majority of the sectors. Some strategic sectors have specific taxes, but the majority of the sectors we’re talking about are transportation equipment, home appliances, and heavy-duty trucks. Hydro and some of the agro industries can import materials produced and added value in Mexico and export directly. That’s a Maquiladora. For the Maquiladora program that we have placed right now, there are already around 6,000 companies.

And of those 6,000 companies, 80% are related directly to manufacturing. Some companies are established under that program to provide services. So that 20% is for services, and if you see that those 6,000 companies gather around three million people that work directly within that manufacturing industry, 89% of that is in manufacturing.

So, if we compare, we see those numbers now that they are not only located at the border. The program, the first in the 1960s, was to establish the border and only allow companies to establish themselves within the first 25 kilometers. It started in that place, which is near El Paso, TX. It’s the border city. That’s where the first industrial park was established. But now, with the IMMEX, the manufacturing of Maquiladora is scattered through different hubs of manufacturing across Mexico. 

The majority of the manufacturing takes place in the northern parts of the country. We are talking not only about the border but rather the upper half of the country and regions that might resonate with some people or not so much. But we’re talking about Tijuana in one corner of the country to Monterrey, Saltillo, or Cerreta, or that some people in the aerospace industry might find that name. But now the companies—the manufacturing companies—play a huge and key role in the economic development of the country. So now you will see the different major cities.

Mexico is directly linked to the manufacturing companies established there. That’s only for the Amex program; it’s the maquiladora. However, if we see manufacturing in general, for example, if a company arrives in the country and wants to produce to export to the US but also to sell to Latin America and Mexico, that’s a different sector that is not only mixed because the products are right. But don’t they leave all of the products? Do not leave some of them, stay in the market. We see that there are around 500,000 manufacturing economic units in Mexico. Of those, more than 4000 are large manufacturing companies because in Mexico we see manufacturing and distribution, and the majority, more than 90%, are small or medium businesses. Small microbusinesses owned by families or small businesses were like five to ten people, but in just those 4,000 companies, 60% of the population that works in manufacturing are in those economic units. 

So, summarizing the question, I think that I diversified a little bit, but they are scattered throughout Mexico, primarily in the larger cities, which serve as a hub for manufacturing. And there are Maquiladora programs, IMMEX, and other manufacturing facilities that operate for sale and grow as long. 

Very interesting. Thank you. Just to clarify for our listeners who may not be aware, NAFTA is the North American Free Trade Agreement that’s between Canada, the US, and Mexico. I believe that was started by President Clinton and then abolished by President Trump, who said that was a terrible deal. And he negotiated the USMCA, the US, Mexico, and Canada Agreement, which does the same thing with some minor tweaks, as far as I understand. 

What are some of the basic Mexican laws that foreign investors need to be aware of: Employment, healthcare, vacations, and taxes. How do they impose themselves?

Sure, sure. Taking into consideration that manufacturing and foreign investment play a huge role in the economy and for the well-being of people, there is special attention from the federal instances to protect and develop the workers through different regulations. Just keep in mind the laws that I’m going to share with you. 

We are talking about the total economically active population in Mexico. There are about 60 million, which is 60 percent of the 130 million that we have right now. But 60 million people are an economically active population. From that in manufacturing, there are around 6.5 million people who are directly involved in manufacturing. That is mostly companies and foreign investors that have established their operations here.

So, this is an important, healthy number of manufacturing people that are involved with this. So now that I understand the regulation, Mexico has made a good effort to protect the worker. However, without losing competitiveness, some of the loss for the worker implies there was a recent reform that increased the vacation from six days after one year to 12 days after the first year.

So, we have 12 days of vacation for the workers after the third year of work. So, they work a whole year and after the first, they can enjoy 12 days. I gather the year or in the one-on-one day, and after that, every two years, every two years, every year it increases until I see seniority of seven, and then it becomes a little bit slower, the addition of the number of vacation days. But for general understanding, 12 days after the first day of the first year of work. There is a Christmas bonus that is mandatory. It’s 15 days of the worker’s salary, and it needs to be paid in December before the 15th of December, so it’s the equivalent of 15 days. 

Also, by law, it’s mandatory to have one day off for every six days of work. And there is a vacation premium that’s also mandatory, and it’s interesting to understand because, as a foreign investor, a rise to the OK, why do I need to give them the Christmas bonus they have? The salary or what I need to give a vacation premium, which is 25% of the daily salary for each vacation today is because, if you see the rates, I will share some numbers later. But the rates of salary in Mexico compared to other countries show a huge gap.

So, these types of regulations create a better environment for the workers that have an impact on their lives, the lives of their families, and their income without also losing the competitiveness of the country. So we have seen that we have 12 days of vacation, one day off for every six days. There is a vacation premium of 25% of the daily salary for every vacation day that they enjoy. For maternity leave, it’s around 90 days. For paternity leave, it’s five days, and there is a severance payment that’s mandatory after they have an undefined contract without any specific date. That is three months of the salary.

And one of the most controversial laws that that we face when we’re talking about companies establishing operations here is the PTU, which is profit sharing law. By law, companies establishing operations in Mexico need to share 10% of the annual profit between their employees. And that 10% is distributed according to seniority level of responsibility, and it doesn’t include directors or shareholders, but rather the full base of the workers, and that 10% is paid in May. And this is some of the general mandatory by law for the workers, but in addition to that, the taxes or the regulations that we have are fairly similar to the US, where you have an income; in Spanish, that will be ESR. And income of revenue. And that’s our revenue, which is around 30%. 

If you are a company that generates profits in Mexico if you are an IMMEX program, a maquila program, you are exporting tax-debt free. You have the ISR; you have the VAT [value added tax] which is 16%. And aside from that, that’s a general overview of the workers. Mexico has a paternalistic approach to the workers, in terms that it covers a bit of all of the necessary areas: paternity leave, maternity leave, and severance payment. We have a strong labor law to protect the workers. However, this does not affect the productivity or attractiveness of Mexico for now, for new investors.

I mean, the holidays in general are around 67 or 66 days that are by law. It’s one of the lowest if you compare it to the OECD country. And if you see the number, this is not related to the regulations, but it’s an important factor. Mexico is one of the countries with the highest number of working hours per person. Some of the countries we know work about 48 hours per week … up to 54.

Oh, it’s very interesting and fascinating. What about some of the cultural issues? Many Americans, of course, are familiar with Mexico, but other countries are not. So, what about cultural issues – you mentioned holidays – but customs that inbound companies may not be aware of? 

It’s important, and we were talking about foreign investment. In the first part of this wave of investment, it was the majority of US companies. However, after the 2000s, we have seen investment grow from Japan, China, and Germany. It’s common for people arriving to misunderstand how the culture works. How does this play a key role in the success of doing business here? 

For example, when we’re talking about specifics… I’m going to take an example from Japanese companies. Japanese companies and people working for Japanese companies tend to have lifelong relationships with them. To create your career, and you are part of that. I mean, it’s a strong bond between the worker and the company.

However, right now, Mexico has a dynamic mark. Mexico has an employers’ market right now that’s attractive because of that talent ability that I’m going to mention a little bit more later, but because it’s attractive, there are a lot of companies arriving, and companies are competing for the top talent. 

So, the worker: They have options to develop and options to work, so there is a dynamic labor market. So especially when we’re talking about manufacturing and at the operator level, you can have one worker in a factory one day and by the next day, they can be in another. So, this is why this is important. 

This is one of the reasons why companies need to understand the cultural nuances and pay special attention to creating a good environment to retain talent, but this is one factor because of the turnover in Mexico, even though it’s not high; we have on average, we have around 7%. It will be the national average hourly workers rather than to have more. It’s a little bit higher. So Japanese companies were confused about why people were arriving and leaving, arriving, and leaving, because it’s a dynamic market for operators.

You need to understand where people are going to look for economic development because if you compare the sustainability and the income that they have in other countries, I mean here 50 pesos will be around 3 U.S. dollars. Make the difference. Make the difference. So, if the company next door offers me that I’m going to go there and then when the other company offers me $2.00 more I’m going to go there. So, it’s more dynamic.

So, this cultural difference with Japanese companies is one of the first factors that we need to explain, in the case of some Chinese companies, the scheme in China, where they work, and how they get paid, there are a lot of companies that pay the workers by the number of production outputs that they have or tend to have. It’s a common practice that they follow within the factory. They have a special place in their hearts. They have accommodations for the workers to live during the week. And they can leave on the weekends.

It’s just like a dormitory… like a dormitory for the workers. 

Yeah, exactly. Yeah, like a dormitory. And Mexico is a family-oriented country. In Mexico, family plays an important role, and it can define whether a person takes a job or not or if a person stays in the job or not. 

And they are not seen to lead. If, for example, we see a legal person in, in this case, the US and Mexico in the US, it’s more common than you have. A job is offered in California, and then you go to Arkansas, and then you move another year to Pennsylvania. If you look at the people that I have met, they have lived in four or five different cities in the last 15 years, it’s been practiced. But in Mexico, given the family nature, and the importance of the family, moving is not that common.

The family plays a special role, so living in a factory dormitory is not a common practice. And when we talk about some European companies, we need to talk about Latin American culture. That is not just Mexico but Latin American culture.

First, and I mean, it’s not the proudest one… but that’s what I mean. It’s cultural. The concept of time and the cost of time for some cultures is linear. You have one specific hour, and it’s at that hour. But the concept of time for Latin America is a little bit more flexible, let’s say. So, there is a Spanish term for it, and it is called Ahorita. Ahorita means right now, the literal translation. However, Ahorita in Spanish can mean right now or in one hour or it can be tomorrow.

So, imagine that you are German, and you are a German plant manager who arrives here, and you face the engineer, and you tell them, OK, you need to go and establish this operation to set up this machine. Yes, Aurita. OK, so you understand what OK Aurita will mean now.

So, he’s going to do it right now. And you see. The work you’ll leave and do something else, so that is the concept of time that is flexible. 

I mean, at the end of the day, I want to go back to the point that I mentioned earlier: Mexico and the Mexican people are hardworking. Mexican people are passionate about what they do. It’s one of the countries where I work the most, so I know that the flight time is flexible but also not have… or it has an impact on productivity, but it does not. It’s not a factor that will undermine the long-term productivity of the country. But understanding that is complex. I mean that and bureaucracy. I mean, being direct when you’re talking about these cultural nuances there are some cultures, and in this meeting, we’re talking about German culture. You are talking with Japanese people, and they will tell you. No, I don’t. I’m not interested. 

And Mexicans, given the family-oriented, friendly Mexicans they are working within Mexico, are friendly, and they want to please. They want to like you. And you’re going to have good connections. However, on the other side of that, Ness or I don’t know if that’s even a term, but being friendly? 

In Mexico, it’s harder to say “no”. People don’t like to say “no”. They will be an example. I’m going to give you another example. If you invite a German client for dinner and to have a beer, and they tell you.

No, I don’t want to be perfect. It’s OK. But if you tell Mexicans Oh yes. Yes, I will be there, and then yes, I need to confirm something. They’re not going to say No, but they’re not going to show up. It’s harder. So, it’s this understanding that once you have that fine tuning, you can make the most of the most successful companies operating from foreign countries. Here are the ones that adapt better to the cultural understanding and have Mexican leadership that combines the needs and the strength points of Hong Kong, the headquarters, and the home country, with the advantages and flexibility that Mexico can provide.

Very interesting culturally.

You are mentioning these issues, and one of them is the management style. One thinks of Latin America especially, as well as places like India, as very much top-down. The boss gives the direction and says how to implement it, and the workers carry it out. Is this top-down culture still very strong or does it depend on the company?

It’s still strong. It’s common to have a top-down structure of management. However, it’s changing with the new generation getting involved within the job environment, and the economically active population, when we are talking. For example, we have seen companies that are still complaining about millennials, like no millennials, they don’t want to work, and they do not respect authority. Millennials, we need to take antacids because we have back pain.

So right now, millennials are part of this. Now Gen Z is arriving to work with the active economic population. So, these new generations are keener on horizontal leadership, more involvement, and more opinions. But I will say that rather than the countries more than generational change that we’re facing, however, in Mexico there is still the hierarchy, the top two down. It is still very strong.

I’m sorry, it’s still very strong, you said.

This is still very strong; that’s correct.

Your firm, PRODENSA, operates in about 25 countries. Which investing countries are perhaps the most difficult or have posed the most interesting issues for you?

I will say that in Asian countries where we had a strong investment from 2010 to 2015, we had a strong investment from Japanese companies. From 2015 – 2018 /’19 ’20. We have seen a strong wave of investment from Korean companies. And from 2020 up until now, the Chinese investment that’s coming here. However, the common factor is that there is a cultural shock, and the most challenging cultural adaptation comes from Asian companies. From the point of origin, there is strong leadership and a very distinctive top-to-bottom hierarchy.

So, to give you some examples, I’m not saying that it’s correct, but I’m saying that it happened. Some of the supervisors in the production line will give us more bumps in the head when somebody makes a mistake. And in some factories in Asian countries, that would be something common. Not, and it’s expected because there is a strong respectful relationship between you as a worker, a supervisor, and a manager. 

But in Mexico, even though there is this hierarchy, respect is an important factor. So, we had some cases of Korean supervisors giving this little bump in the head to the Mexican workers. But the Mexican will turn around and return the punch. Understanding that you need to have leadership but also need Mexicans, Mexican companies, and Mexicans in general, given the family-oriented profile: The companies tend to have a paternalistic approach. 

Successful businesses take care of their employees and are concerned about their well-being. What does this imply? If I can give you some examples. Given the social nature of the Mexican people, some companies may get together with the families of the workers. For example, every August, when the children go back to school, some companies create this school kit for the employers to give to the kids. I mean, the cost of some of the school supplies is high.

So, the workers need that paternalistic approach that says, I’m taking care of you; I look out for you, and that creates a reciprocal relationship with the workers so that they feel engaged. If you compare that to companies, they told them when they just arrived from Asia that it was strict, like you needed to be here because I’m paying you to be here.

It’s hard, and I will reflect that in the turnover. The attrition of those companies before the cultural adaptation will be around 15 to 20%, and after the cultural adaptation, this sensibility for the cultural visibility of leadership creates a higher retention factor that ensures that people stay and work there and reduces attrition to below 1% in some cases. 

And one example, maybe I’m going back to the question, but it’s a good example. It’s a shock for companies when they arrive and when they’re making the compensation for the compensation package. It’s common in Mexico to have an attendance and punctuality bonus.

Sorry… attendance and what? 

Punctuality bonus for arriving on time. A bonus for arriving on time, so German. 

Punctuality bonus. 

Punctuality bonus, that’s correct. So German companies will look at me like, why do I need to give a bonus for arriving on time? And it’s part of this cultural adaptation and what’s expected from the market.

Yeah, very interesting. You know, Asian companies in Korea, Japan, China, and Taiwan… They are also pretty paternalistic. Not so much Taiwan, but certainly Japan, Korea, and China. And they have very similar behaviors to those described in Mexico. So that should not be a shock for them.

Correct. That’s correct. In general terms, the approach of the division of the workers within the company is similar. The way that it’s implemented is different because of what can be done, and what is done by foreign companies in the home countries in Japan, China or Korea to show that the paternalistic approach is not the same as in Mexico. But in Mexico, you need to take care of the farm, you involve the family. You involve the workers themselves in the interaction. The concept is the same, but the way that it’s approached is a little bit different…. I will say.

Can you give another example of how the Mexican employers would take care of the family?

Sure, sure. And I want to highlight that because if somebody listens to me right now, they will say, OK, it’s crazy and complicated, and it’s not. It’s not because we see the broad numbers of operating costs. The output or the benefits of establishing here are just the adaptation of what we are highlighting as the main differences, but for companies in terms of taking care, it’s common to have transportation; it’s mostly expected for the companies because the workers do not want to spend their salary to go to work. 

So, it’s going to the manufacturing industry, especially the manufacturing industry, to have transportation for the hourly workers to arrive. It’s common to have the cafeteria subsidized so that the worker pays around 20 percent to 30 percent of the total cost of the meal. It’s common to have it from the company at these family events. Going and talking about the regulation, by law, all employers need to register their employees in the Social Security Service, which is the IMMS, and the IMMS in Mexico is the Social Security Service.

That is managed by the government; it’s free for the workers and it’s paid; it offers complete healthcare for the workers for free and it’s paid by the employers. It’s part of the social cost the employer incurs. And one of the benefits that the companies offer is that, on some levels, they offer private medical assistance… My private medical insurance. The Social Security service in Mexico covers some of the whole population, so it might not be as efficient as going to a private hospital. Taking care of the details and involving the family in decision-making at various events fosters a sense of involvement. Some other factors that are common in the food coupons. 

So, the hourly worker will have the salary. But also, one percentage of that salary is going to be paid through a special card, food coupons can only be used for groceries at supermarkets. And that’s a way to involve the partner, the spouse, and the wife. Giving that to the partner is part of the compensation, so to create that sense of retention because it’s common, it’s commonly practiced that the partner of the worker says, OK, if you leave, I’m going to lose that card. So, it’s part of that cultural approach.

In terms of giving, you give an example of a city that grew into an industry. I’m located in Monterey. It’s the second-largest city and is one of the industrial hubs in Mexico. This city grew because of the manufacturing industry, and one of the best examples of the paternalistic approach are some of the legacy companies that created the pathway for investment here. And these companies were established here, and one of the needs was that I need some qualified engineers. I don’t find the talent here in the local schools. 

So, in the late 40s, and early 50s, they established Technologico de Monterrey, which is the largest and best private university in Mexico. And they established that because they required workers, they created the university and provided healthcare to the workers of those companies. So, they created the best private hospital in Monterey, which was created by one of those companies. And right now, it’s a completely different entity, but the approach to providing what is needed to the workers is a way to retain and engage with them. 

Very fascinating. Thank you. 

Now I must ask about the negative side of everything, and this is very often what people, especially Americans, would assume and fear. And those are about the aspects of bribery, extortion, kidnapping, and so forth, both of the employees and any expatriate foreign executives. So how prevalent is all of that, and how real are these threats?

I think that it’s one of the most important questions, and it’s one of the factors that have a greater impact on the earlier stages of any investment in the country.

It is real; it’s something real. It’s something that is happening with the cartel violence and the kidnappings that are real. We are not saying that it doesn’t exist. However, what is important to highlight is the percentage of that compared to the perception, it’s really small. Mexico is a country of 130 million people. 

So, if we see localized violence, it happens. And where is it? I mean, if we see the impact on the economy, it has a big impact. We’re talking about almost 300 billion pesos [around US$17 billion]. The cost of the violence and the security represents about 1% or almost 2% of the total GDP of Mexico. That’s the impact of the violence.

So, it’s something real, and it’s happening, however, In every country, It’s not widespread. It’s localized in some regions. So, companies have been doing business in Mexico for more than 60 years. Foreign companies, and recently, I mean the huge chunk of foreign investment that arrived in the last 30 years, have been doing business without major risk. It’s about going to the right areas and not messing in the wrong areas. I’m not saying that it doesn’t happen, because it has a couple of cases. With the employers or ex-pats, it’s happened, and it has been unfortunate. However, if you see the numbers, it’s localized in some regions.

Sadly, some of the border cities are keen to have this type of violence by the drug cartels, but none of them border cities. I will say that one of the ones from top to bottom will be Juarez, followed by Mexicali. It’s close to Nogales, Sonora. And then we’ll be in Tijuana-Reynosa. and that will be a high level of violence.

But if you go down to the rest of the country, there is a focus on insecurity. But it’s mostly located there. In rural areas or the outskirts of the city, where this type of engagement occurs, when you hear about a gun shooting in Mexico or you hear about it in certain regions. For example, here in Monterey, there are 6 million people. So it happens in certain parts, but the majority of people can live with relative peace of mind. So, if you come to Mexico, you will not face anything like going down on the plane. You’re not going. You’re not at risk of seeing a shooting.

So, what I want to say is the type of bribery or corruption. Sadly, something more affects the business. Corruption within the governmental agencies or local authorities is something that we are dealing with, and I will put special attention on that because that’s more likely to happen or face something that can be sorted out with the legal team and compliance team that sort that way out. But in terms of specific violence? Yeah, I will say that it’s localized, and it represents a small, really small percentage of the total operations and likelihood of the expats here in Mexico. 

Very interesting. Is there anything else you’d like to add before we close? 

I mean, at the end of the day, I will say that North America is alive, a one-of-a-time opportunity in terms of economic growth. The conditions of the trade war between China and the US, the war with Russia, and Ukraine after COVID, and the reconfiguration of the supply chains allow this economic region to grow.

Right now, we are facing a change from globalization to regionalization. And that effect is going to last for the following three to five years. That’s the window that we have to operate as a whole region, integrating the factors, integrating the supply chain, and facilitating the flow of talent between the regions to take advantage of what? It’s going on, right? The flow of investment Mexico offers foreign companies arriving here If an engineer in Mexico, per year, earns around US $17,000. In the US, it’s around $63,000, so it’s 150% less.

An hourly worker: An operator in the US will be around $33,000 per year. 30K to 33K in Germany will be like that. In Malaysia, it’s around US $7,500 per year. But in Mexico, even the competitiveness, the competition, the rising wages, and everything else are still there, it’s still within the $5K per year per worker.

So, Mexico offers a good competitive advantage if we combine logistics infrastructure with talent availability right now. And in the long term, Mexico still has a Bonus: its population has grown from 2010 to 2020 up to 12%, so that ensures that companies arriving in this region will have talent availability for the long term, and it’s an increasing number in, for example, technology and mathematics systems. All of the STM [Science, Technology, Math] careers and Mexico are focusing a lot. I mean, just in the Northwest region, there are around 24,000 graduates per year; in the Northeast 21,000; in the central part of Mexico, it’s around 40,000 per year. 

So, we’re talking about engineers. We’re talking about technicians and programmers, so that will allow Mexico, the US, and Canada to work as one region to ensure that investment arriving here can be distributed and can be done efficiently,

That’s fascinating. Thank you so much, Ricardo. This has been a wonderful introduction to Mexico, of course, and the tremendous advantages that the country offers and that PRODENSA offers to facilitate inbound investment from all over the world. 

So, thank you so much for joining us and for being our guests and listeners. I hope you will join us next time for another edition of Global Gurus such as with Ricardo, and their wonderful stories of international business. Thank you.  

Thank you very much.

Leave a Comment

Your email address will not be published. Required fields are marked *






    <a target="_blank" href="http://www.apptivo.com/"> <img style="border: medium none;" alt="Apptivo.com is the best free way to run your business. Apptivo.com powers ecommerce websites, provides free CMS, free CRM, free ERP, free Project Management and free Invoicing to small businesses." title="Apptivo.com is the best free way to run your business. Apptivo.com powers ecommerce websites, provides free CMS, free CRM, free ERP, free Project Management and free Invoicing to small businesses." src="../images/apptivo.png"> </a>