Mexico Report. This report was completed on: June 9, 2011

Transcription

1 Mexico Report This report was completed on: June 9, 2011 Research provided by: Export Readiness Center Washington State University 1235 N. Post Suite 201 Spokane, WA Spokane Export Readiness Center Seattle Export Readiness Center All Rights Reserved, WSU - SBDC

2 Introduction Mexico is the second largest Latin American economy with a GDP of $1.086 trillion (2010 est.). Its booming economy (which grew 5% in 2010), shared border with the U.S., and free trade agreement with the U.S. (NAFTA) make it a very attractive country for Washington State exporters. For a Washington State exporter, Mexico s most promising sectors include (but are not limited to): automotive parts, electronic components, agricultural products (specifically fruits and dairy), airport and ground support equipment, and energy technology and services. Mexico s official language, Spanish, will likely be the greatest challenge for an exporter. This may result in added costs due to product re labeling and translation fees, but can be overcome with relative ease due to the high availability of translators and English speaking business people in Mexico. Another challenge and potential business risk is from drugrelated violence; however this is manageable in most regions and even non existent in some. In spite of these two challenges, Mexico remains the second largest export destination for the U.S. importing 12.8% of all American exports. Mexico s general political and economic stability, excellent relationship with the U.S., and expanding markets have made it consistently considered as one of the best markets for Washington State exporters. Disclaimer: By using the information in this report, you understand and agree that although the Washington State Small Business Development Center (SBDC) has made significant effort to provide accurate information in this report, data sources are time sensitive and the accuracy of the information will diminish over time. THE SBDC PROVIDES THE INFORMATION IN THIS REPORT AS IS. SBDC MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING THE WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, AND DOES NOT WARRANT THE ACCURACY, COMPLETENESS, OR USEFULNESS OF THE INFORMATION. SBDC ASSUMES NO LIABILITY FOR ANY DIRECT OR INDIRECT DAMAGE CAUSED BY RELIANCE ON INFORMATION CONTAINED IN THE REPORT. 2 P age

3 Table of Contents Introduction... 2 Table of Contents... 3 Country Overview... 6 GEOGRAPHIC CHARACTERISTICS... 6 Map... 6 Total area... 6 Terrain... 6 CLIMATE... 6 NATURAL RESOURCES... 7 Minerals and metals... 7 Oil and natural gas... 7 Arable land... 7 Water source... 7 REGIONS/STATES/PROVINCES... 7 MAJOR CITIES... 7 INFRASTRUCTURE... 7 Main ports of entry... 7 Transportation between cities... 8 Telecommunications... 8 Foreign trade zones... 9 Market structure and distribution channels... 9 Economic GDP Growth trends Industry sectors MAJOR IMPORTS AND EXPORTS Top imports to Mexico from all world markets Top imports from Washington State Top exports from Mexico to all world markets BALANCE OF TRADE ECONOMIC STRUCTURE ECONOMIC POLICY CURRENT ECONOMIC SITUATION TAXATION BARRIERS TO TRADE AND IMPORTING Tariffs P age

4 Non tariff barriers Ease of market entry ECONOMIC ZONES LABOR FORCE Labor practices and restrictions Unemployment rate (%) Productivity Wage structure Below the poverty line (%) PROFIT REPATRIATION INVESTMENT POLICIES AND PROTECTIONS CURRENCY Exchange rate and exchangeability Rate of inflation Political POLITICAL SYSTEM(S) AND INSTITUTIONS MAIN POLITICAL PARTIES/FIGURES POLITICAL RISK Political stability, historical perspective Political stability, current assessment MILITARY CAPABILITY INTERNATIONAL RELATIONS AND DEFENSE RELATIONSHIP WITH THE U.S Legal CONSTITUTION JUDICIAL STRUCTURE REGULATORY ENVIRONMENT INTELLECTUAL PROPERTY RIGHT, PATENT, COPYRIGHT, TRADEMARK, AND TRADE SECRET PROTECTION Demographic Characteristics POPULATION DEMOGRAPHICS Size and growth Ethnic groups Societal make up Age and gender distribution Urban vs. rural distribution Health Major religion(s) Income distribution (per capita) P age

5 LANGUAGE(S) EDUCATION Literacy (%) Average years of education TECHNOLOGICAL PENETRATION RECEPTIVE TO THE U.S. AND OTHER FOREIGN PRODUCTS Culture PEOPLE Collectivism vs. individualism Power distance Gender roles Uncertainty avoidance High vs. low context Religious influences on culture BUSINESS Business culture and practices Business etiquette Relationship building Bribes Timeliness... Error! Bookmark not defined. Environment PROTECTION POLICIES ENERGY CONSERVATION PACKAGING RESTRICTIONS U.S. Agencies Supporting Exports Information Sources Appendices APPENDIX A: DEALING WITH TARIFFS AND TAXES APPENDIX B: REQUIREMENTS FOR GOODS P age

6 Country Overview GEOGRAPHIC CHARACTERISTICS Mexico s borders include the U.S. to its north, the Pacific Ocean to its west, the Gulf of Mexico and the Caribbean Sea to its east, and Guatemala and Belize to its south east (see fig. 1). Map Figure 1: Map of Mexico. CLIMATE Source: Mexico. The Word Factbook U.S. Central Intelligence Agency. ISSN Web, Map of Mexico. Total area The total area of Mexico is 1,964,375 sq km; comprising 1,943,945 sq km of land and 20,430 sq km of water ( Mexico ). Terrain Mexico is made up of high rugged mountains, low coastal plains, high plateaus, and desert ( Mexico ). The coast and lower elevations in Mexico can often be very hot and humid with temperatures ranging from 75º 88ºF in winter and over 90ºF in summer. In altitudes from 3,700 5,500 feet, temperatures range from 60º 70ºF ( Mexico s Climate ). 6 P age

7 NATURAL RESOURCES Minerals and metals Of the total value of mineral production in Mexico in 2008, copper accounted for 21% followed by gold (17%), silver (15%), zinc (9%), iron (7%), coal (6%), sulfur (4%), lead (2%), and others (19%) (Perez 1). Oil and natural gas Mexico s confirmed oil reserves are billion bbl (1 January 2010 est.) while its confirmed natural gas reserves are billion cu m (1 January 2010 est.) Mexico produces approximately 245 billion kwh a year (2008 est.); Mexico s oil production is 3 million bbl/day (2009 est.); and the natural gas production is billion cu m (2009 est.) ( Mexico ). Arable land Of Mexico s land, 12.66% is arable ( Mexico ). Water source The 78cm mean annual precipitation that falls over two million sq km of the country s territory produces 450 cu km of renewable surface and groundwater. This should be sufficient to satisfy the needs of the approximately 110 million Mexicans. However, the rainfall is uneven in its space and time distribution. When combined with waste and pollution, this makes water with suitable quality for specific uses an increasingly scarce resource ( Water Legislation in Mexico ). REGIONS/STATES/PROVINCES Mexico consists of 32 federal entities (31 states and 1 federal district): Durango, Sinaloa, Chihuahua, Sonora, Baja California Sur, Baja California, Coahuila, Nuevo León, Tamaulipas, Nayarit, Jalisco, Colimay, and Michoacán de Ocampo, Aguascalientes, Guanajuato, Querétaro, San Luis Potosí, Zacatecas, Morelos, México, el Distrito Federal, Puebla, Veracruz, Tlaxcala, Hidalgo, Guerrero, Oaxaca, Chiapas, Tabasco, Campeche, Quintana Roo, and Yucatán. MAJOR CITIES Mexico City, Distrito Federal Capital of Mexico; Pop: 8,873,017; Guadalajara, Jalisco Western region of Mexico; Pop: 1,494,134; Monterrey, Nuevo León North Eastern region of Mexico; Pop: 4,080,329; Puebla, Puebla Eastern region of Mexico; Pop: 2,668,347; and Toluca, Mexico Central Southern region; Pop: 1,846,602. INFRASTRUCTURE Main ports of entry Airports In total there are 250 paved runway airports in Mexico. The seven largest are: Cancún International Airport, Mexico City International Airport, General Mariano Escobedo International Airport (Monterrey), Don Miguel Hidalgo y Costilla International Airport 7 P age

8 (Guadalajara), General Juan N. Álvarez International Airport (Acapulco), General Abelardo L. Rodríguez International Airport (Tijuana), and Lic. Gustavo Díaz Ordaz International Airport (Puerto Vallarta) ( Mexico Airports ). For a complete listing see: Seaports There are 60 commercial seaports in Mexico. By type these are: bulk carrier 4, cargo 3, chemical tanker 12, liquefied gas 4, passenger/cargo 11, petroleum tanker 22, and roll on/roll off 4. The most important ports for a Washington State exporter will likely be The Port of Manzanillo, one of Mexico s busiest ports, or the Port of Lázaro Cárdenas, Mexico s only deep water seaport. Both these ports are located on Mexico s Pacific coast (US Commercial Service Mexico). Land entry ports Located on the Mexico California border, San Ysidro Puerta is the most frequented international land entry port in the world accounting for one out of every ten people entering the U.S. via sea, land, or air. Located on the Mexico Arizona border, San Luis II Port of Entry Industrial Park is another very important entry point for exporters. Located five miles east of Port San Luis I, this new commercial port offers 10 commercial inspection processing lanes, Free and Secure Trade (FAST) lanes, Customs Trade Partnership against Terrorism (C TPAT) program and more. Located on the Mexico Texas border, the World Trade Bridge port of entry connects Nuevo Laredo, Tamaulipas to Laredo, Texas. Transportation between cities Mexico s transportation network is extensive with 366,095 total km of roads, 17,516 total km of railway, and 2,900 total km of navigable rivers and coastal canals ( Mexico ). Telecommunications Telephones In 2009, Mexico had in use million main line telephones and million mobile cellular telephones. Mexico has adequate telephone service for business and government; it is improving quality, and increasing mobile cellular availability. There is a domestic satellite system of 120 earth stations, an extensive microwave radio relay network, and considerable use of fiber optic and coaxial cable. Fixed line teledensity is less than 20 per 100 persons however mobile cellular teledensity reached 75 per 100 persons in 2009 ( Mexico ). Internet Mexico has million (2010) internet hosts and million (2009) internet users ( Mexico ). Other Mexico has a large number of television stations and more than 1,400 radio stations, most of these are privately owned. The Televisa group once had a virtual monopoly in TV broadcasting, however new broadcasting groups and foreign satellite and cable operators are now available ( Mexico ). 8 P age

9 Foreign trade zones San Luis Potosi, North central Mexico: Logistikftz, Interpuerto Parque Logistico. Durango, Northwest Mexico: Centro Logistico Industrial Durango (CLID). Nuevo Leon, Northeast Mexico: Villa21. Maquiladoras A maquiladora is a Mexican Corporation that operates under a maquila program approved for it by the Mexican Secretariat of Commerce and Industrial Development. A maquila program entitles the corporation: first, to foreign investment participation of up to 100% without need of any special authorization; second, it entitles the corporation to special customs treatment, allowing the duty free temporary import of machinery, equipment, parts and materials, and administrative equipment such as computers, and communications devices, subject only to posting a bond guaranteeing that such goods will not remain in Mexico permanently (Mexico Data On line). There are more than one million Mexicans working in over 3,000 maquiladora manufacturing or export assembly plants in northern Mexico, producing parts and products for the U.S. This form of Mexican labor is inexpensive and legitimized by the North American Free Trade Agreement (NAFTA). Most of the maquiladoras are located near the U.S Mexico border and are often found within industrial parks as well as large ports of entry (Rosenburg). Market structure and distribution channels In Mexico, imported goods are generally distributed by distributors or agents to a mixture of modern retailers, such as international supermarket chains, and traditional owner operated independent retailers. There are many different ways products can be marketed and distributed; several of these may seem foreign to a Washington State exporter. However, with research these can be understood and exploited. 9 P age

10 Economic GDP GDP of $1.086 trillion, 2010 est. PPP 1 ( Country: Mexico ). Growth trends Mexico's GDP dropped 6.6% in 2009 as world demand for exports fell along with asset prices, but GDP posted a positive growth of 5% in 2010, with growth in its exports leading the way ( Mexico ). Industry sectors Food and beverages, tobacco, chemicals, iron and steel, petroleum, mining, textiles, clothing, motor vehicles, consumer durables, and tourism ( Mexico ). By percent these are summarized as follows (see Table 1): Table 1: Industry Sector Composition. MAJOR IMPORTS AND EXPORTS Agriculture: 4.2% Industry: 33.3% Services: 62.5% Top imports to Mexico from all world markets Electric machinery; sound equipment; TV equipment; industrial machinery, including computers; vehicles, except railway or tramway, and parts; mineral fuel; oil; bitumen substances; mineral wax; plastics and articles thereof; optic, photo equipment; medic and surgical instruments; organic chemicals; articles of iron or steel; iron and steel; pharmaceutical products; and cereals (Wisertrade.org). Top imports from Washington State Aircraft, spacecraft, and parts thereof; edible fruit and nuts; citrus fruit or melon peel; dairy products; birds eggs; honey; edible animal products; electric machinery; sound equip; TV equip; industrial machinery, including computers; paper, paperboard and related products (including paper pulp); vehicles, except railway or tramway, and parts; toys, and games and sport equipment (Wisertrade.org). Top exports from Mexico to all world markets Electric machinery; sound equip; TV equip; vehicles, except railway or tramway, and parts; industrial machinery, including computers; mineral fuel and oil; bitumen substances; mineral wax; optic and photo equipment; and medic and surgical instruments (Wisertrade.org). 1 Purchasing Power Parity (PPP): An economic theory that estimates the amount of adjustment needed on the exchange rate between countries in order for the exchange to be equivalent to each currency's purchasing power (Investopedia.com). 10 Page

11 BALANCE OF TRADE Trade deficit of $3,121 million (Uriz 1). ECONOMIC STRUCTURE Mexico has a free market economy with a GDP of over a trillion USD (2010 est.). It contains a mixture of modern and outdated industry and agriculture, increasingly dominated by the private sector. Recently, the federal government has expanded competition in seaports, railroads, telecommunications, electricity generation, natural gas distribution, and airports ( Mexico ). ECONOMIC POLICY Mexico has free trade agreements with over 50 countries including the U.S., Guatemala, Honduras, El Salvador, the European Free Trade Area, and Japan, putting more than 90% of trade under free trade agreements ( Mexico ). Implementation of NAFTA began on January 1, NAFTA removed most barriers to trade and investment among the U.S., Canada, and Mexico. Under NAFTA, all non tariff barriers to agricultural trade between the U.S. and Mexico were eliminated. In addition, many tariffs were eliminated immediately, with others being phased out over periods of between 5 to 15 years. This allowed for an orderly adjustment to free trade with Mexico, with full implementation beginning January 1, 2008 ( North American Free Trade Agreement ). CURRENT ECONOMIC SITUATION The global financial crisis and the subsequent downturn in the U.S. economy resulted in the sharpest economic contraction in the Mexican economy in twenty years. It is estimated to have contracted by 6.6% in 2009 with the Mexican peso depreciating 25% against the dollar. However, economic growth was 5% in Mexico s policy measures in response to the crisis and its prior economic performance have helped the economy start to recover and the exchange rate to improve. The Economist Intelligence Unit (EIU) projects Mexican GDP growth at 3.9% for 2011 (Villarreal 1). Mexico experienced the deepest recession in the Latin America region following the financial crisis. This was largely due to its high dependence on manufacturing exports and its ties to the U.S. economy, as well as other factors (Villarreal 1). In response to the recession, Mexico s Central Bank recently made substantial interventions to stabilize conditions in the foreign exchange market and secured lines of credit through the U.S. Federal Reserve swap line 2 and the International Monetary Fund (IMF) to improve confidence in its economy. Mexico has indicated that it does not intend to draw upon these resources, but 2 Swap Line: A term for a temporary currency arrangement between central banks. They agree to keep a supply of their country's currency available to trade to other central banks at the going exchange rate. It is meant for overnight and short term lending only. This keeps liquidity available for central banks to lend to their private banks to maintain their reserve requirements. This liquidity is necessary to keep financial markets functioning smoothly ( US Economy ). 11 Page

12 TAXATION sought them to provide confidence to investors and the financial markets in the event that global conditions were to deteriorate (Villarreal 5). The Mexican FY2010 budget included a considerable tax reform that was designed to offset revenue losses from lower oil production. Also, Mexico s requirements on corporate disclosure of derivative exposures have been tightened. In addition, the government has made structural reforms to enhance growth potential, most recently in the electricity sector, and it has announced plans to gradually increase foreign exchange reserves (Villarreal 15). The Calderón administration continues to face many economic challenges, including improving the public education system, upgrading infrastructure, modernizing labor laws, and fostering private investment in the energy sector. President Calderón has stated that his top economic priorities remain reducing poverty and creating jobs ( Mexico ). There is a 10 percent value added tax on products going to the northern Mexico border region and a 15 percent value added tax on products going elsewhere in the country. In addition, there is a 0.8 percent customs processing fee for products that do not qualify for NAFTA preferential tariff treatment. For information about taxation for those earning profits in Mexico in ways other than direct exportation the following website has a comprehensive explanation in English: 78_8615.html BARRIERS TO TRADE AND IMPORTING Tariffs Most tariffs on goods entering Mexico from the U.S. were eliminated by NAFTA. Tariffs remain on 89 goods. See appendix A for instructions on dealing with tariffs. Non tariff barriers Most non tariff barriers, such as quotas, were eliminated by NAFTA. However, it has been noted that U.S. exporters continue to express concerns about Mexican customs administrative procedures, including: insufficient prior notification of procedural changes; inconsistent interpretation of regulatory requirements at different border posts; alleged under invoicing of agricultural products; and uneven enforcement of Mexican standards and labeling rules ( Foreign Trade Barriers: Mexico 248). Consequently, Washington State exporters should be prepared to encounter some of these difficulties. Lastly, the Mexican company Telmex and its wireless affiliate Telcel dominate the Mexican telecommunications market ( Foreign Trade Barriers: Mexico 250). This may prove to be a barrier for telecommunications companies looking to expand into Mexico. 12 P age

13 Ease of market entry With the extensive trade between the U.S. and Mexico, there are abundant market opportunities for U.S. firms entering Mexican markets. Some of the most promising sectors 3 include: automotive parts, electronic components, housing and construction equipment, airport and ground support equipment, travel and tourism services, plastic materials and resins, energy technology and services, environmental technologies and equipment, telecommunications equipment, security and safety devices, hotel and restaurant equipment, inter modal equipment, and education and training services (US Commercial Service Mexico). ECONOMIC ZONES Mexican economic zones are a collection of regions into which the Mexican Republic was divided in the 1970s with the goal of improving the political, social, and above all, the economic relationships between neighboring states. This division has been used to implement various measures, for example an I.V.A. or Value Added Tax that varies according to the region where one lives. Mexico is divided into 8 zones ( Zonas Económicas y Actividades Económicas ), each including a number of states (see Table 2). Table 2: Economic Zones of Mexico. The Northwest of Mexico (Noroeste de México) The Northeast of Mexico (Noreste de México) The West of Mexico (Occidente de México) North Central Mexico (Centro norte de México) South Central Mexico (Centro sur de México) The East of Mexico (Oriente de México) The Southwest of Mexico (Suroeste de México) The Southeast of Mexico (Sureste de México) Durango, Sinaloa, Chihuahua, Sonora, Baja California Sur, Baja California. Coahuila, Nuevo León, Tamaulipas. Nayarit, Jalisco, Colimay, Michoacán de Ocampo. Aguascalientes, Guanajuato, Querétaro, San Luis Potosí, Zacatecas. Morelos, México, el Distrito Federal. Puebla, Veracruz, Tlaxcala, Hidalgo. Guerrero, Oaxaca, Chiapas. Tabasco, Campeche, Quintana Roo, Yucatán LABOR FORCE The labor force numbers million ( Mexico ), by occupation (see Table 3). Table 3: Occupation by Percent. Agriculture: 13.7 % Industrial: 23.4% Services: 62.99% Labor practices and restrictions Mexico's Federal Labor Law sets forth the rules and regulations regarding labor relations, labor unions, and labor courts. Similar to U.S. law, Mexico s Federal Labor Law states that employers 3 See this website for access to trade specialists in each of these sectors: 13 P age

14 are not permitted to terminate employees without just cause. If an employee feels that he/she has been terminated without just cause, he/she has the ability to file suit for reinstatement or indemnification. Important subcategories include: The work week The federal Labor Law of Mexico sets forth a maximum of 48 hours per week as the number of hours a laborer can work without earning overtime. However, most companies only have a workweek of 40 to 45 hours. The work day For every 6 days of work (Monday through Saturday), employees are entitled to one day of rest with full pay. Therefore, when hiring and deciding on salary in Mexico, companies must keep in mind that the hiring is being done per week and not per day. Salary The law sets forth a minimum daily wage for each category of services to be provided in a given geographical area. The law also sets the requirement for an annual review of the salary being paid and a minimum by which that salary must be increased. Employee vs. independent contractor The rights and obligations between these two work relationships are very different. If the work relationship resembles that of an employee, even though the company states it is an independent contractor, Labor Courts will treat the relationship as an employee. Holidays Official holidays in Mexico are: January 1 (New Year's Day), February 5 (Constitutional Day), March 21 (Juarez's Birthday), May 1 (Labor Day), September 16 (Independence Day), November 20 (Revolution Day), and December 25 (Christmas Day). Vacation time Employees have the right to an annual vacation, which is not to be less than 6 working days. For every year the employee continues to work for the employer, he/she will receive an additional 2 working days vacation. Then after four years, the employee s vacation entitlement will be increased by 2 days for each additional five years he/she works for that employer. In addition, the employee will have the right to not less than a 25% vacation premium calculated on his/her salary for the vacation period. Labor contracts There are two types of employment contracts. One is collective (i.e. the same for several people), in which the clauses are determined between the employer and the labor union. The other is an individual contract in which the individual negotiates his/her own employment contract. ( Labor Relations in Mexico ). Unemployment rate (%) Mexico s unemployment rate is 5.5% ( Mexico ). 14 P age

15 Productivity In 2004, the OECD estimated that Mexico's labor productivity was less than 30% of the U.S. level. While Mexican labor productivity is increasing, it has failed to keep up with other emerging markets such as China, Chile, and Turkey. The recent economic growth in Mexico is mainly due to growth in production factors other than the productivity of labor ("International Comparison of Productivity Levels" 1). Wage structure As mentioned under the subcategory Labor practices and restrictions (above), the legal minimum wage depends both on geographical location and profession. The minimum wage ranges from approximately 70 pesos a day to 99 pesos a day (or approx. $5.75 to $8.20 USD depending on exchange rates) 4. Below the poverty line (%) Of the Mexican population, approximately 18.2% lives below the poverty line using the food based definition. More than 47% are below the poverty line using the asset based definition of poverty. ( Mexico ). PROFIT REPATRIATION Mexico does not have capital repatriation controls. Currencies can be freely bought, sold, and sent or transferred abroad (Lara and Carsalade). Mexican subsidiaries may freely repatriate profits as long as they and their parent entities are in good legal standing and meet their tax obligations. INVESTMENT POLICIES AND PROTECTIONS The 1993 Foreign Investment Law is the basic statute governing foreign investment in Mexico. The law is consistent with the foreign investment chapter of NAFTA (the North American Free Trade Agreement) ( 2010 Investment Climate Statement ). This means that Mexico must treat most foreign investment (e.g. the majority of investment from the U.S.) in a non discriminatory way. In other words, the Mexican government may not give special advantages to domestic investors by levying taxes or similar investment barriers, on foreign investors. Also, since the introduction of NAFTA, the Mexican government has made automatic approval of foreign investment cover a wider variety of investment types. Lastly, under NAFTA the Mexican Government may not enforce performance requirements for foreign investment projects. However, even in light of these improvements, working with local Mexican courts can be difficult and confusing. Competent Mexican legal council should be sought in the case of investment disputes. 4 In order to obtain exact numbers please look at this webpage to find the profession you are interested in: wages/mexico And this webpage to find which region (A, B, or C) you will be operating in: minimo/mexico salarios minimos/geographical areas by municipalities 15 Page

16 CURRENCY The Mexican currency is called the Nuevo Peso and is denoted using $ or MXN. Exchange rate and exchangeability Exchange rate as of May 5, 2011: 1 USD = MXN 1 MXN = USD (Exchangerates.org). The Mexican Peso is an internationally recognized currency and may easily be exchanged for USD. Rate of inflation As of 2010, the Mexican rate of inflation was 4.1% ( Mexico ). 16 P age

17 Political POLITICAL SYSTEM(S) AND INSTITUTIONS Mexico is a Federal Republic. The Mexican people are represented by elected congressmen who make laws that are subject to review by the judicial branch. The President is also elected and has substantially more power over Mexico than, for example, the U.S. President does over the U.S. Mexico has a stable and functional, though bureaucratic, government. MAIN POLITICAL PARTIES/FIGURES Mexico has a multi party system, meaning there are more than two dominant parties. Nationally the dominant parties are the National Action party (PAN), the Institutional Revolutionary Party (PRI), and the Party of the Democratic Revolution (PRD). There are several smaller parties that tend to ally themselves with the larger parties. All of the registered parties with their associated leaders are summarized as follows (see Table 4): Table 4: Mexican Political Parties and Leaders. Convergence for Democracy (CD): Luis Walton Aburto Institutional Revolutionary Party (PRI): Beatriz Paredes Rangel Labor Party (PT): Alberto Anaya Gutierez Mexican Green Ecological Party (PVEM): Jorge Emilio Gonzalez Martinez National Action Party (PAN): Gustavo Madero Munoz New Alliance Party (PNA): Jorge Antonio Kahwagi Macari Party of the Democratic Revolution (PRD): Jesus Ortega Martinez ( Mexico ) POLITICAL RISK As of 2010: There is a possibility of an increase in cruelty from drug cartels against their rivals, as well as more frequent confrontations between cartels and authorities. Also, the possibility exists of cartels meddling with state elections through inside sources causing corruption or even intimidation and extortion. Another significant risk is associated with the possibility of a congressional stalemate due to slow progress in legislation. This could result from the PRI failing to agree internally on particular legislation or increased antagonism between the PRI and the PAN over controversial issues. Corruption within civilian run security institutions and even at the state or federal levels is also a possibility. Lastly, fears about emerging guerilla groups acting against energy infrastructure along with possible radical movements may threaten Mexico s security (Shtullmann). Political stability, historical perspective In 1997 Mexico s political elections brought an end to the Institutional Revolutionary Party s (PRI) 70 year rule. A beginning to the political recovery was launched by the Democratic Party, and grew stronger following the 2000 Presidential Elections. President Vincente Fox was elected into office, the first president to come from the opposing political party to the PRI. 17 Page

18 Political stability, current assessment Since the 2000 Democratic Party upset, Mexico has been climbing its way back to stability both politically and economically. Following the 2006 Federal elections, it was reported that the public southern and northern states are now equally divided between the PAN (National Action Party) and the PRD (Party of the Democratic Revolution). Much of the country s strength economically comes from money sent home from the millions of migrant workers in the U.S. In response to the economic recession faced by the U.S. in 2008, Mexico too suffered. MILITARY CAPABILITY Mexico has approximately 48,880,000 people fit for military service and uses 0.5% of GDP for military purposes ( Mexico ). INTERNATIONAL RELATIONS AND DEFENSE Abundant rainfall in recent years along much of the Mexico U.S. border region has ameliorated periodically strained water sharing arrangements set up by NAFTA in The U.S. has intensified security measures to monitor and control legal and illegal personnel, transport, and commodities across its border with Mexico. Mexico must deal with thousands of impoverished Guatemalans and other Central Americans who cross its porous southeastern border seeking work in Mexico or in the U.S. Belize and Mexico are working to resolve minor border demarcation discrepancies arising from inaccuracies in the 1898 border treaty ( Mexico ). RELATIONSHIP WITH THE U.S. The United States and Mexico have a close and complex bilateral relationship, with extensive economic linkages as neighbors and partners under the North American Free Trade Agreement (NAFTA). In recent years, security issues have dominated the relationship between the U.S. and Mexico. The U.S. has supported Mexican President Felipe Calderón s campaign against drug trafficking organizations through bilateral security cooperation initiatives including the Mérida Initiative, an anti crime and counter drug assistance package first funded in FY2008. Immigration and border security have also returned to the forefront of the bilateral agenda since Arizona enacted a controversial state law against illegal immigration (S.B. 1070) on April 23, In response to rising concerns about border security, President Obama deployed 1,200 National Guard troops to support law enforcement efforts along the U.S. Mexico border and the 111th Congress approved $600 million in supplemental funds for border security (Seelke, Summary). As regards the recent recession, in May 2010, President Barack Obama hosted Mexican President Felipe Calderón at a meeting in the White House in which the two leaders discussed key issues affecting their two countries. They agreed to continue and reinforce cooperation on creating jobs, promoting economic recovery and expansion, and encouraging inclusive prosperity across all levels of society in both countries (Villarreal, Summary). 18 P age

19 Legal CONSTITUTION The Mexican constitution is founded on seven fundamental ideals: a declaration of rights, sovereignty of the nation, separation of powers, representative government, a federal system, constitutional remedy by voting, and supremacy of the state over the Church (Avelos 5). JUDICIAL STRUCTURE The judges of the Supreme Court of Justice or Suprema Corte de Justicia de la Nacion are appointed by the president with consent of the Senate ( Mexico ). Mexico's judiciary, both federal and state, has been a separate branch of government since independence. Federal courts include the Supreme Court, with 21 magistrates; 32 circuit tribunals, and 98 district courts, with one judge each. Special courts include a fiscal tribunal and boards of conciliation and arbitration ( Mexico Judicial system ). The Supreme Court has both original and appellate jurisdiction in four divisions: administrative, civil, labor, and penal. Circuit courts hear appeals from the district courts ( Mexico Judicial system ). The jury system is not commonly used in Mexico, but judicial protection is provided by the Writ of Amparo, which allows a person convicted in the court of a local judge to appeal to a federal judge ( Mexico Judicial system ). Low pay and high caseloads contribute to a susceptibility to corruption in the judicial system ( Mexico Judicial system ). REGULATORY ENVIRONMENT In 2010 the Mexican government launched an online system for registering new businesses. It lets businesses complete all required registration procedures and make necessary payments through a single Internet portal. The value added tax was increased by 1 percentage point from January 1st The standard rate increased to 16% and the reduced rate to 11%. Falling tax and oil revenues and slowed economic activity in 2009 have highlighted the need for greater fiscal reform to boost non oil tax collections. The Mexican Congress passed reforms in April 2010 to strengthen the Federal Competition Law; they increase the penalties for violations. The changes also made unfair competitive practices a criminal offence. In June 2010, the government introduced new measures to reduce money laundering. These make it more difficult for individuals and businesses to exchange U.S. dollars for local currency at banks. 19 P age

20 Mexican tariffs remain in force on 89 imports from the U.S. These followed the U.S. government s cancellation in March 2009 of a program that facilitated the cross border transport of goods by Mexican trucks. Mexico has undertaken initiatives to boost e government services; in fact, the latest UN E Government Survey ranked it second in e information. But low rates of Internet access limit citizens online participation ( Country: Mexico ). INTELLECTUAL PROPERTY RIGHT, PATENT, COPYRIGHT, TRADEMARK, AND TRADE SECRET PROTECTION Mexico s overall performance in intellectual property right, patent, copyright, trademark, and trade secret protection has been improving substantially. Cooperation among agencies that protect and enforce these rights has increased along with the severity of penalties for infringements. Recent legislation has also played a role in extending this protection. Under NAFTA, U.S. Intellectual Property Rights holders may apply to Mexican authorities to stop the production of counterfeit goods. Companies that have requested this type of action have reported positive outcomes ( Intellectual Property Rights ). 20 P age

21 Demographic Characteristics POPULATION DEMOGRAPHICS Size and growth The Mexican population is 112,468,855 (July 2010 est.) and is growing at rate of 1.102% annually (2011 est.) ( Mexico ). Ethnic groups Mexico s largest ethnic group, making up 60% of the population, is Mestizo (Amerindian Spanish). Second is Amerindian or predominantly Amerindian, which makes up 30% of the population. 9% of the population is white and 1% is classified as other ( Mexico ). Societal make up Mexican society is characterized by social schisms. Wide disparities in wealth, social status, and educational levels exist across different sections of Mexican society ( Mexico: Society and Culture ). This is exemplified in that among the poorest, education is largely unaffordable and drinking water is difficult to obtain. In contrast, the upper class is extremely affluent and very rarely associates with the lower class. Age and gender distribution The age and gender distributions (2010 est.) are summarized as follows (see Table 5): Table 5: Age and Gender Distribution 0 14 years 29.1% (male 16,544,223/female 15,861,141) years 64.6% (male 34,734,571/female 37,129,793) 65 years and over 6.2% (male 3,130,518/female 3,811,543) ( Mexico ) Urban vs. rural distribution 78% of Mexico s total population live in urban areas, leaving 22% in rural regions (2010 est). The rate of urbanization is 1.2% annually ( est.) ( Mexico ). Health Health statistics ( Mexico Statistics ) are summarized as follows (see Table 6): Table 6: Health Statistics Life expectancy at birth m/f (years) 72/77 Healthy life expectancy at birth m/f (years 2003) 63/68 Probability of dying under five (per 1000 live births) 35 Probability of dying between 15 and 60 years m/f (per population) 155/89 Total expenditure on health as % of GDP (2006) P age

22 LANGUAGE(S) EDUCATION Major religion(s) 76.5% of Mexico s population identifies itself as Roman Catholic, 6.3% as Protestant (Pentecostal 1.4%, Jehovah's Witness 1.1%, and other 3.8%), 0.3% as other, 13.8% as unspecified, and 3.1% as none ( Mexico ). Income distribution (per capita) Mexico s Gini Index 5 is 48.2 (2008) ( Mexico ). Mexican GDP per capita is $16,390 (2010 est. PPP) ( Country: Mexico ). Of Mexico s population, 92.7% speaks Spanish, 5.7% speak Spanish and indigenous languages, 0.8% speak only indigenous languages, and 0.8% is unspecified ( Mexico ). Literacy (%) When defined as those ages 15 and over who can read and write, 86.1% of Mexico s population is literate (86.9% of males and 85.3% of females) ( Mexico ). Average years of education The average educational attainment in Mexico is 14 years ( Mexico ). TECHNOLOGICAL PENETRATION Mexico s Technology index 6 is 4.13 (ranked 46 th among 101 economies by the World Economic Forum) ( Technology Index ). RECEPTIVE TO THE U.S. AND OTHER FOREIGN PRODUCTS Mexico ranks 7 th among 26 identified emerging markets for market receptivity 7 ( Market Potential Index ). 5 Gini index: a measure of income inequality. A society that scores 0 on the Gini scale has perfect equality in income distribution. The higher the number is over 0, the higher the inequality. 100 indicates that one person has all the income (Businessdictionary.com). 6 Technology Index: This denotes the country's technological readiness. This index is created with such indicators as companies spending on R&D, the creativity of its scientific community, and personal computer and internet penetration rates (Nationmaster.com). 7 Market Receptivity: This index was created using per capita imports from the U.S., and trade as a percentage of GDP. 22 P age

23 Culture PEOPLE Collectivism vs. individualism Mexico has a low Individualism ranking, but it is slightly higher than other Latin countries. The society is Collectivist as compared to Individualist. This is manifest in a close, long term commitment to the member group, be that family, extended family, or other extended relationships. Loyalty in a collectivist culture is paramount, and over rides most other societal rules and regulations. The society fosters strong relationships where everyone takes responsibility for fellow members of their group ( Geert Hofstede Cultural Dimensions: Mexico ). In light of this, relationship building is vital for business in Mexico (the importance of relationship building is discussed later in the report). Once a relationship is built and one has become part of the group, Mexican counterparts will likely remain loyal through challenges. Power distance Another Dimension in which Mexico ranks higher than other Latin neighbors is Power Distance. This is indicative of a high level of inequality of power and wealth within the society. This condition is accepted by the culture as a whole (Geert Hofstede Cultural Dimensions: Mexico). For business, this primarily means that positions need to be respected. For example, if business negotiations are being handled by a Mexican firm s top manager, the firm from Washington State should also send its top manager. Gender roles Mexico has the second highest Masculinity ranking in Latin America. This indicates that in Mexico men and women play different roles in society and in the work place. The male dominates a significant portion of the power structure. This situation generates a female population that becomes more assertive and competitive, although not at the level of the male population (Geert Hofstede Cultural Dimensions: Mexico). Most women in Mexico earn a lower wage and are less educated than men. However, in the 21 st century women have been known to hold leadership positions in national political parties. This development suggests that the Mexican gender roles are slowly changing with women becoming more significant players in leadership. Uncertainty avoidance Mexico's highest Hofstede Dimension is Uncertainty Avoidance indicating the society s low level of tolerance for uncertainty. In an effort to minimize or reduce the level of uncertainty, strict rules, laws, policies, and regulations are adopted and implemented. The ultimate goal of this population is to control everything in order to eliminate or avoid the unexpected. As a result of this high Uncertainty Avoidance characteristic, the society does not readily accept change and is very risk averse (Geert Hofstede Cultural Dimensions: Mexico). This can be either positive or negative for businesses. On one hand, this uncertainty avoidance can lead to a high level of dependability. On the other hand it can lead to bureaucracy and a lack of creativity and openness which can hinder business operations. 23 P age

24 High vs. low context Mexico is a high context culture. As a result, Mexicans place a strong emphasis on how a message is said rather than only on the words used. Exaggerations are used often but are understood by Mexicans to be elaborations on the truth. These exaggerations are often interpreted as lies in cultures of low context such as the U.S. Messages are also understood in terms of the full context of the communicators' relationship with one another. As a direct consequence of the high context nature of Mexican communication, it is necessary to build a personal relationship when conducting business with Mexicans. Without the context of that personal relationship, little if any substantive communication can take place and necessary levels of trust are inadequate to undertake most business arrangements. In Mexico, personal understandings are more binding than contracts. Contracts are often seen as the beginning of a relationship that can be subject to change as the relationship progresses. This contrasts with the view of low context cultures in which the contract is not seen as something that can be changed easily. Finally, in high context societies, understood or unofficial rules are often as important (or even more important) than written rules. This holds true even in relationships with government officials. These unwritten rules deal often with issues of respect and family loyalty in Mexico, and remain subject to the context of the situation to which they are applied (Victor). Religious influences on culture Mexico is among the most uniformly Roman Catholic nations. While several hundred thousand Protestants and several thousand Jews represent significant minorities, Mexico does not have the diversity of religion found in the U.S. Also, while technically Mexico has a separation of church and state, the role of religion may seem pervasive by U.S. standards. Conflict of religion in the workplace is negligible since Catholicism is so widely shared; consequently such practices as having a priest bless a new office building or corporate sponsorship of a religious procession are well accepted. Display of religious imagery in the workplace is likewise common and well accepted. By contrast, religion is usually intensely personal in the U.S., a fact that makes many Mexicans view their U.S. counterparts as irreligious or at least highly secularized (Victor). Prohibited goods and services The majority of goods and services may be imported into Mexico with little or no restriction. Exceptions are summarized as follows: o Animal products Alive predator fish juvenile or adult; Totoaba fresh, cooled or frozen; turtle eggs of any class; skins of doggerhead turtle. o Narcotics Poppy seeds or poppy seed flour; marijuana seeds, spores, medications, extracts, juices, mucilage or condensed products, or plants; opium juices or extracts; Heroin, base or hydrochloride of diacetylmorphine; o Chemicals Thallium Sulfate; Isodrin or Aldrin; Heptaclor or Drinox; Endrin, Mendrin, Nendrin or Hexadrin; Leptophos; and medication prepared with acetyl morphine or its salts or derivatives. o Other Stamps or printed transfers in colors or in black and white, displayed for their sale in envelopes or packages, even when they include chewing gum, candies or any other type of articles, containing drawings, figures or illustrations that represent childhood in a degrading or ridiculous way, or attitudes of incitement 24 P age

25 to violence, to self destruction or in any other form of antisocial behavior (e.g. Garbage Pail Kids), printed by any company or commercial denomination; goods that have been declared as archaeological monuments by the Secretariat of Public Education ( Inicio Pasajeros ). Requirements for goods and services Requirements for goods are outlined under NAFTA. The requirements include filling out a certificate of origin and following the associated rules. All information about this process is readily available from the U.S. Trade Information Center (Export.gov). BUSINESS Business culture and practices The typical workday in Mexico is from 8am to 6pm. Office Lunches are usually taken between 1pm and 3 pm and last between 1 and 2 hours. Spanish is Mexico's official language, and business meetings normally take place in Spanish. English is quite widely spoken in business circles, today more than ever before, and if you do not speak Spanish, your hosts may be happy to hold the meeting in English. If you do not speak any Spanish at all, it may be wise to hire an interpreter to attend the meeting with you. When doing business in Mexico, the most important thing to remember is that a relationship must be developed first. Mexican people make friends first, and then they do business, not the other way around. Mexican meetings tend to be less focused on order and agenda and more focused on creativity. Do not expect the meeting to progress in the linear fashion used in the U.S. ( Business Etiquette in Mexico ). Business etiquette Mexican businesses tend to be very hierarchical. Status and position is important in Mexico, and you should acknowledge this and act accordingly. Mexicans dress formally for business meetings with suits and ties, and will expect the same dress code from foreign business professionals. Names and titles are very important in Mexico. If a person s title is known, it should be used. Formal handshakes are always appropriate for greetings. When meeting or departing from a woman, a light kiss on the cheek is also customary but let her lead in this ( Business Etiquette in Mexico ). Relationship building As mentioned in the discussion of Mexico as a high context culture, relationships are vital for business. If one does not take time to develop a relationship (i.e. a friendship) building rapport and trust, then that person may as well not be in Mexico on business. An American firm may have the best product, but if its personnel do not take time to build relationships, the Mexican 25 P age