Political uncertainty at home and the lure of the world's largest economy are two factors that have led Mexican companies to consider investing in the United States more seriously than ever. But many companies are unsure how to proceed or where to start.
These are some of the takeaways from international business trips we conducted over the past year in conjunction with the South Carolina Department of Commerce and the U.S. Embassy in Mexico and our recent conversations in Mexico with more than a dozen companies, from publicly traded to family-owned, in sectors including pharmaceuticals, petrochemicals, textiles, housewares and appliances.
What is causing Mexican companies to consider looking north?
The vast majority of business leaders we spoke to cited growth opportunities and geopolitical uncertainty as reasons for considering investments abroad, especially after certain unilateral actions the Mexican government has taken recently, such as:
- The expropriation of 120 kilometers of railway tracks owned by the Grupo México conglomerate using the figure of expropriation for a public utility project.
- The purchase of 13 power generation operations owned by a Spanish company to allow the state-owned electricity company CFE to control 54% of the electricity market.
In addition, additional concerns arise because the current administration has control of the House and Senate with the ability to pass laws with very little opportunity for the business community to weigh in.
Overall, the perception is that business in the U.S. is more stable and predictable than in Mexico. Many companies we spoke to were particularly interested in the Southeast U.S. (which is the newest trend, with Mexican companies commonly choosing states like California, Texas, and Florida in the past), as the area offers access to over 70% of the U.S. population within a day’s drive, as well as easy access to key ports and cities on the East Coast. Companies were also attracted by the Southeast’s cost of doing business and the availability of labor.
Key Considerations for U.S. Investments
As companies explore their first investment in the U.S., legal issues to consider include:
• Choosing the most appropriate corporate structure for US operations, as a legal entity in the US is formed at the state level, and there are several types of US entities (they do not have federal or national entities). Corporations and limited liability companies (LLCs) are two common options, and each has its own advantages and disadvantages.
• Selecting a site and obtaining government incentivesThere is variability in state and local tax rates, the availability and cost of real estate, access to skilled labor and the likelihood of dealing with unions, as well as the richness of government incentive packages.
• US RegulationsU.S. immigration laws are complex and can cause problems and delays for companies that do not plan ahead for their travel and staffing needs. Companies that locate in the U.S. must also understand their obligations under applicable federal, state, and local tax and environmental laws, as regulations there tend to be just as complex as in Mexico.
Given the myriad considerations at play, it can be especially valuable to partner with legal and site selection professionals who can provide data-driven answers to each company’s key questions.
What happens to companies that decide to stay and invest in Mexico?
Despite the adverse situation in Mexico, foreign direct investment continues to occur. Mexico has been a natural place to access the United States market, which can be enhanced by the effect of the nearshoring, due to the US economic disputes with China and also because the Mexican government wants to encourage foreign investment in the south of the country. Additional factors are the recent strengthening of the Mexican peso against the US dollar and the attractive interest rates in Mexico, in some cases above 11%.
Article in collaboration with Parker & PoeFor more information, please contact the authors or your usual contact at Santamarina + Steta.
