Thursday, September 9, 2010

Doing Business in Mexico? Tips to Make It Easier

By Glynna Prentice
When you start a new business, there are so many issues to keep in mind….putting together a business plan, checking out the competitive landscape in your market, making sure you have enough capital until you turn a profit…. When you start that new business in Mexico, though, there can be important questions that you haven’t even thought to ask.

And, bottom-line, it may just be easier in some parts of Mexico than in others to set up and run your particular business. Communications may be better, or the business climate more open, or the trained labor force larger. If you don’t speak much Spanish, you may need a region where a lot of locals understand English—even if it’s not your first choice for location.

We’ve conferred with other expats and consulted some official sources to identify areas of Mexico where it can be easier to do business. Sometimes it’s due to an area’s convenient infrastructure; other times it’s the positive business climate or streamlined bureaucracy. Depending on your business, some of these factors may not be important to you; others may be key to your success. We’ll let you decide that for yourselves.

Can I get to an international airport easily?

If you’re moving to Mexico to simply kick back and relax, you may not care how long it takes to
get back home to the U.S., Canada, or wherever. But if your business involves much international travel, or export/import of goods or documents, for instance, you’ll care how quickly you can get from
Mexico to points abroad. 

(We assume here that you’re looking to start a consumer-based business rather than a manufacturing company.  Manufacturing facilities—called maquiladoras—tend to be clustered along the U.S./Mexico
border, though there are a few elsewhere.)

If you need an international airport in Mexico, here are five top picks.

If easy access to an international airport is one of your criteria, therefore, here are our top picks in Mexico.  We’ve based our choices on the airports’ convenience, number of direct international flights and the destinations they serve, and proximity to expat communities. They are:

  •  Guadalajara, state of Jalisco (closest airport for the Lake Chapala/Ajijic area)
  • Cancún, state of Quintana Roo (less than an hour from Playa del Carmen and the Riviera Maya)
  •  Puerto Vallarta, state of Jalisco
  •  Mérida, state of Yucatán (nearest airport for the Yucatán Gulf coast beach towns)
  •  León, state of Guanajuato (nearest airport for San Miguel de Allende, Dolores Hidalgo, and

Guadalajara’s airport is less than an hour from Lake Chapala/Ajijic, as is Cancún’s airport from the Riviera Maya. Puerto Vallarta and Mérida airports are right in those cities. The León airport, however, is about half an hour from Guanajuato but well over an hour to San Miguel and Dolores Hidalgo—something to keep in mind if you’re a frequent flier.

Note: We’ve deliberately left off two of Mexico’s largest international airports, Mexico City and Monterrey.  These cities’ expat communities tend to consist of corporate business executives rather than entrepreneurial adventurers or retirees looking to start a small business. In addition, Mexico City’s airport ranks pretty low on the convenience scale—most people find it large and confusing. But if you want to locate your business in either Monterrey or Mexico City, these two airports have plenty of flights.

Do I have easy access to telecommunications?

Top cities for getting by in English.
It’s always a good idea to learn Spanish if you plan to do business in Mexico. But if you cater to an expat market or live in an area where many locals understand English, you may get by just fine with
minimal Spanish. All border cities fit this description, of course. For the rest of Mexico, here are our top picks:

1. Lake Chapala/Ajijic
2. Cancún/Playa del Carmen
3. San Miguel de Allende
4. Puerto Vallarta
5. Manzanillo

Generally speaking, it’s pretty easy to stay in touch with the rest of the world from Mexico. Telephone service is widespread and reliable, and so is Internet access. If you’re moving into a house or office with an existing telephone hook-up, you usually can sign up for and get service within a few days or weeks. 

For Internet service, there are Internet cafés all over the country where you can get immediate wireless access. Signing up for an Internet plan (and getting the connection) can take anywhere from a day to a few weeks, depending on whether you get the service through a cell phone provider, land line, or cable.

Areas where you may not get a signal: 
  • Sparsely populated areas that are a distance from signal towers (both coastal and in the interior)
  • Remote mountain regions (for instance, parts of Chiapas,
  • Oaxaca, and Veracruz states)
  • In dense urban areas, signals may become saturated at certain hours of the day—for instance, after 5 pm when students are home 

If you depend on the Internet, sparsely populated and remote areas probably aren’t the best areas to settle (you may have already nixed them for other reasons, anyway). If you plan to move to a dense urban area, try to check whether there are signal problems at any time of day. If there are, move elsewhere—or be prepared to work your schedule around the hours of peak usage.

How easy is it to do business here? Mexico Insider’s top state picks

The World Bank regularly produces a report on doing business in Mexico. The latest report, published earlier last year with data from 2008, covers all 31 Mexican states plus the Federal District— the Distrito Federal.  The report tracks the time, complexity, and cost involved with several business processes. These include getting the permits to open a business, inscribing a property you’ve bought into the Public Registry, getting construction permits, and getting a judgment in the courts on contract disputes.

These specific factors may or may not affect your business. But the World Bank has found that they’re good indicators of how business-friendly overall a location is. When these four processes are easy, doing business in general tends to be more efficient and transparent. And that creates a more level playing field for outsiders (like expats) and minorities (like women and indigenous) to compete successfully.

We looked at the World Bank’s list of the 10 states in Mexico where it’s easiest to do business, and selected the five that we feel best suit expats’ needs. (Plus we throw in a sentimental favorite as a bonus.)

Here, then (in reverse order), are Mexico Insider’s picks for the easiest states in Mexico for doing business:
5. Chiapas
4. Zacatecas
3. Sinaloa
2. Colima
1. Guanajuato

…Plus our bonus pick: Yucatán

#5. Chiapas. 

To our great surprise, Chiapas, Mexico’s poorest state, actually ranked #2 on the World Bank’s list. Why?  In Chiapas it’s easy and fast to file for and get the permits to open a business, inscribe a property in the Public Registry (which makes a purchase official), and get construction permits. In recent years, Chiapas has streamlined the process for getting a Mexican tax ID and for registering a business in the Public Commercial Registry.

For property registration, Chiapas has gone straight to the digital age. It has implemented a program for notaries and peritos (specialists who must sign off on some documents) that allows online payment, with digital signature and seal. Registering a property in Chiapas now takes only 20 days, and has one of the lowest costs in Mexico—1.64% of the property value.

As we noted in last month’s article on San Cristóbal de las Casas, Chiapas is one of Mexico’s most
geographically and ethnically diverse states. San Cristóbal itself is a lively city with a very international expat community. Tourist and eco-related businesses appear popular both in San Cristóbal and in Chiapas in general. Many expats are involved in these. And thanks to Chiapas’s leap into the modern age, you get your business and your personal life there set up in record time.

On the down side, Chiapas has no international airport (the airport at the capital, Tuxtla Gutiérrez, is domestic, and flights go via Mexico City). If you travel frequently for business or personal reasons, this will be more difficult from Chiapas.

#4. Zacatecas

This state in central Mexico came in #3 on the World Bank’s list.  The state capital, also called Zacatecas, is a World Heritage city with an almost-chilly spring-like climate that hovers in the 60s F. for much of the year.  Unlike many colonial cities in this region of Mexico, Zacatecas has largely
stayed under the expat radar. Yes, there are expats here, but don’t expect an enclave. However, if you feel comfortable rubbing elbows with the very professional locals in a scenic historic city, Zacatecas could be one place to consider.

As a state, Zacatecas is about average in terms of how easy it is to open a business or get a construction permit.  However, if you should have a contract dispute in Mexico, the best place to be is Zacatecas. Disputes here are solved faster—248 days— and at lower cost—20.4% of the dispute amount—than anyplace else in Mexico.  The colonial, World Heritage city of Zacatecas is also a thriving business center

#3. Sinaloa

Sinaloa, on Mexico’s Pacific coast, is home to Mazatlán. This beach town has a large and loyal expat
community and many expat-run business ventures. Mazatlán is among the most affordably priced of Mexico’s beach resorts, and many buy property here as a vacation home and investment. 

It’s fairly easy to open a business in Sinaloa—there are only seven steps, or trámites, involved, six of which are set by the federal government and apply nationwide. Getting the permits to open a business takes 16 days on average in Sinaloa. It’s also fairly easy to register a property you’ve bought, taking just over three weeks. And if you have a contract dispute, Sinaloa is the second-easiest state in Mexico, after Zacatecas, in which to get it resolved.

You’ll also find English widely understood in Mazatlán, thanks to the city’s tourist trade. Mazatlán also has an international airport with direct flights to the U.S.

On the down side, crime is an issue in some parts of Sinaloa, notably Culiacán, north of Mazatlán. Make sure you feel comfortable with the area of the state you’ve chosen, and the type of business you’ve selected.

#2. Colima

The small state of Colima, on Mexico’s Pacific coast, tends to be progressive. Manzanillo, the large port city on the coast, is a popular expat and snowbird destination, where English is widely understood. Manzanillo has two five-mile beaches and plenty of beach-related businesses, some run by expats. Real estate is also big business here, with several expat-run agencies. Colima, the state capital, lies in the mountains about an hour from the coast, and has a year-round mild climate. There are relatively few expats in Colima capital, but Mexicans regard it highly—in 2007, in the newspaper El Universal’s annual poll, Mexicans voted it the city with the highest quality of life in the country.

You’ll need to have patience if you open a business in the state of Colima.  It takes longer to get business permits here than anywhere else in Mexico—57 days.  (And while you’re waiting to open shop, you’re not making money…) If you need to get construction permits to build or add onto your premises, plan on its taking about six weeks.  And to register a property?  Expect about two months. (The times involved for construction permits and property registration are close to the national average for Mexico, however—so don’t consider them out of the ordinary.)

On the plus side, Colima’s government is relatively transparent and its legal system efficient—very reassuring when you’re an expat doing business in another country. And should you have a contract dispute at any time, you can get it resolved in under a year—faster than anyplace in Mexico except Zacatecas and Sinaloa.

Manzanillo has an international airport with some direct U.S. flights.  For many more flights to choose from, the Guadalajara airport, one of the biggest in Mexico, is only three hours away.

#1. Guanajuato 

The state of Guanajuato, in the heart of the Colonial Highlands, is home to one of the best-known expat havens in Mexico—San Miguel de Allende.  The state is rich in history and culture, and dotted with colonial cities.  The capital, Guanajuato, is a World Heritage city with its own expat community. And nearby Dolores Hidalgo is where Mexico’s war of independence from Spain had its start.

This is a vibrant arts and crafts area, and workmen from Guanajuato are widely considered some of the best in Mexico. You’ll find expats running all types of businesses here: boutique hotels and Bed & Breakfasts; real estate management and sales; restaurants and bars; crafts shops or export/import; and many, many others.  

Expats have been moving to parts of Guanajuato (notably San Miguel) for the last 50 years. Not surprisingly, English is widely understood in several of the major cities. And of course, if your business caters to tourists or to the large expat community, you have a built-in English-speaking audience. If your Spanish isn’t great, or this is your first time living and working in another country, Guanajuato may be the easiest place in Mexico to do it.

According to the World Bank, it’s also easier to open a business in Guanajuato than anyplace else in Mexico.  You can get all the necessary permits in just 12 days.  It takes just slightly longer to register a property you’ve bought—19 days.  We’re not saying that expats move to Guanajuato because of its expat-friendly business climate—there’s the dramatic scenery, temperate weather, and stunning colonial architecture, after all—but it certainly doesn’t hurt.

…And our bonus state, Yucatán  

The state of Yucatán, where Mérida is located, does not rate well in any of the World Bank’s categories.  For ease of doing business overall, it ranks #26 among Mexico’s 31 states.  It ranks only about average for opening a business or registering a property, and for resolving a contract dispute it’s right near the bottom—it takes about a year and a half here.

And yet...thousands of expats live in Yucatán, especially Mérida, and many of them own and operate thriving businesses.  They are pillars of the real estate community, have newspapers and publishing businesses, run hotels and Bed & Breakfasts, and renovate and flip properties, among many other trades. 

Perhaps they are proof that, as an expat, you can successfully run a business anywhere in