This section reviews several different factors in selecting and managing your distribution and sales in Mexico.
It is a challenging environment for retail sales, with the impact of an unprecedentedly strong U.S. dollar, the proliferation of interest-free financing offers (meses sin intereses or MSI), mobile retailing, and continued company activity in the form of mergers, acquisitions, and expansions. The COVID-19 pandemic has generated significant uncertainty about the recovery of the retail segment. The retail association ANTAD operates 59,300 stores, and it remains to be seen how its members will plan for economic recovery and the “new normal.”
A common practice in Mexico is to offer consumer financing in the form of interest-free layaway / MSI. Originally extended primarily by national retailers during special events such as the ‘Hot Sale’ and ‘el Buen Fin,’ the practice has become widespread among both local and international companies. Mexico has several large retail stores and chains including El Palacio de Hierro, Saks Fifth Avenue, Coppel, Grupo Comercial Chedraui, and Sears Roebuck de México.
Walmart de México leads retailing, with its share value more than twice as high as that of the second biggest player (FEMSA Comercio). Walmart’s performance was especially impressive given Mexico’s fragmented competitive environment, relevance of traditional sales, and small independent retailers.
Meanwhile, online shopping in Mexico is anticipated to more than double by 2022 to nearly USD 18 billion, with the major global eCommerce players moving into high gear following the 2016 recession. These projections have not been updated for a post-COVID environment in which growth of online shopping may be even larger than originally forecast.
Key players continuing to vie for a bigger stake in this eCommerce market are Mercado Libre, Amazon, Walmart, and Alibaba. The Argentina-based Mercado Libre is by far the most popular online retailer in the region, with operations in 18 markets.
Importers and Wholesalers
Key retail chains are among the largest importers and wholesalers, including Walmart de México, Costco de México, El Puerto de Liverpool SAB de CV, El Palacio de Hierro, Sanborns de México SAB de CV, and Sears Roebuck de México. The official database of Mexican importers features approximately 3,200 import firms as of December 2017 (the most recent year for which figures are available).
Mexico is a large market to cover, whether for distribution or for sales channels. The U.S. Commercial Service in Mexico recommends that U.S. exporters consider splitting the country into distinct territories rather than trying to sign a single agent or distributor with exclusive national rights.
Logistics and Distribution Infrastructure
Mexico is a leading global logistics center, in large part based upon its 13 trade agreements with 50 countries. Shipping logistics work well in Mexico, though not without some concerns. The World Bank’s Logistics Performance Index (the most recent year) places Mexico in 51st place out of 160 countries in terms of logistics efficiency. Transportation–logistics services are expensive in Mexico, representing eight to 15 percent of product costs in Mexico, compared to five to seven percent in the United States. According to the Mexican Secretariat of Communications and Transportation (SCT), 60 percent of Mexican products for domestic consumption travel by land on trucks, 14 percent travel by train, and 26 percent are transported by ship.
The Mexican Government seeks to reduce transport costs across the economy to increase competitiveness and facilitate supply chains. To do so, Mexico is modernizing its national transportation network. The López Obrador Administration’s National Development Plan seeks to improve cargo transport infrastructure, particularly in Southern Mexico. This plan builds upon the prior Administration’s National Infrastructure Plan, which launched improvements to highways, railways, and ports. These infrastructure projects are described in further detail in our section on transportation infrastructure.
Currently, Mexican transport infrastructure includes:
• Approximately 390,000 km of highways and roads
• More than 26,700 km of railroads
• A total of 64 international commercial airports; 1,424 airfields (including military and small private owned fields) and nearly 500 heliports
• More than 100 seaports and intermodal terminals
• Nearly 27,000 km of oil and gas pipelines
Logistics and Land Borders
The main land border crossings with the United States are Nuevo Laredo–Laredo, Ciudad Juárez–El Paso, Piedras Negras–Eagle Pass, Mexicali–Calexico, and Tijuana–San Diego. Tijuana is the busiest border crossing by volume of traffic; however, the Nuevo Laredo–Laredo border crossing is the largest by value, accounting for approximately 53 percent of all U.S.-Mexican trade in merchandise.
The Government of Mexico and some state governments are trying to promote other border crossings to decrease the concentration in Laredo and to offer options for expanding bilateral commercial traffic, such as Colombia, Nuevo Leon. At the federal level, the U.S. and Mexican Governments meet regularly in various working groups focused on the border to advance joint efforts increasing the capacity, efficiency, and speed of border crossings for people and goods. One result was the establishment of the Unified Customs Processing (UCP) program. The UCP brings together Mexican Customs (Aduanas) and U.S. Customs & Border Protection agents at the same location to jointly clear cargo. This has the potential to dramatically speed cargo inspections and increase border security. Despite this progress, as of June 2019, shippers have reported intermittent delays for truck and rail crossings as border personnel respond to a variety of priorities.
Sixty percent of goods are distributed by trucks. Mexico has a modern highway system, primarily comprising toll roads, connecting the main industrial areas located in the Mexico City–Guadalajara–Monterrey triangle. Outside this area, road transportation is more challenging.
The main maritime ports on the Gulf Coast of Mexico are Altamira, Tampico, Veracruz, and Progreso. On the Pacific Coast they are Ensenada, Guaymas, Lázaro Cárdenas, Manzanillo, and Puerto Madero. All these ports have the infrastructure and equipment to facilitate intermodal, door-to-door merchandise transportation. The Government’s infrastructure program includes major projects to modernize and expand existing ports, including doubling capacity of the Port of Veracruz, improving existing multimodal corridors, connecting Gulf and Pacific ports, and linking production and consumer centers with NAFTA corridors.
Using an Agent to Sell U.S. Products and Services
Some U.S. firms sell their products through individual sales agents, and there are many Mexican firms interested in serving this role for U.S. firms. The use of sales agents can be an effective way to reach smaller cities and remote locations in Mexico.
Selecting an appropriate agent or distributor requires time and effort. There may be many qualified candidates, and U.S. firms should set high standards to select the best suited agent/distributor. Since most Mexican firms sell in limited areas, U.S. companies should consider appointing representatives in multiple cities to broaden the distribution network. It is usually not advisable to grant an exclusive, national agreement. It is essential to develop a close working relationship with the appointed agent/distributor and maintain continuous communication. Appropriate training, marketing support, samples, product support, and timely supply of spare parts (depending upon the industry) are critical for success.
There are no indemnity laws to prevent a company from canceling an agent or distributor agreement, but cancellation clauses should be specific. Sales performance clauses in agent/distributor agreements are permitted, and failure to meet established standards can be a reasonable cause for contract cancellation. Before signing an agent/distributor agreement, all parties should fully understand the terms and conditions, and how the relationship is to be developed. Many international commercial relationships become strained because insufficient time is invested in developing a full understanding of what is expected.
The U.S. Commercial Service and other organizations—such as the American Chamber of Commerce in Mexico and U.S. state government trade representatives—maintain lists of Mexican agents/distributors, manufacturers, Mexican government offices, and private sector trade organizations. After identifying a suitable agent/distributor, we encourage the U.S. exporter to conduct a commercial background check on the Mexican firm. The U.S. Commercial Service offers an International Company Profile that provides background information on a potential business partner. Commercially available services, such as Dun & Bradstreet, may list larger Mexican firms.
If a product is new to the market, or if the market is extremely competitive, advertising and other promotional support should be negotiated in detail with your representative. Product and industry knowledge, track record, enthusiasm, and commitment should be weighed heavily. We suggest the U.S. exporter schedule annual visits of Mexican personnel to the U.S. company headquarters for training. (More information on the visa process is provided in the Business Travel section in Visa Requirements.) Another important factor to consider is financing, as credit from Mexican banks is limited, and, when available, is often expensive. Joint venture agreements may also be considered to strengthen market penetration. Direct marketing is another popular marketing strategy. Telemarketing is evolving and gaining in popularity and scope. While internet penetration has not yet reached U.S. levels (the Mexican Government estimates internet access by 71 percent of the population over the age of six), social media marketing is becoming increasingly important and should be factored into marketing plans when appropriate.
Establishing an Office
For U.S. companies interested in establishing a presence in Mexico, the General Law of Mercantile Organizations (or Civil Code) regulates many different forms of business entities. The type of business incorporation that a U.S. company or individual chooses is extremely important, as it determines the operations they may perform in Mexico and, among other liabilities, the amount of taxes owed.
The most commonly used types of business classifications are the Corporation (Sociedad Anónima) identified with ‘S.A.’ at the end of the company name, and the Corporation with Variable Capital (Sociedad Anónima de Capital Variable) identified with ‘S.A. de C.V.’ One of the advantages of the latter is that the minimum fixed capital can be changed after the initial formation.
The Civil Partnership (Sociedad Civil) is the most common organization for professional service providers. It has no minimum capital requirement and no limit on the number of partners, but it is taxable in the same way as a corporation. It is identified with ‘S.C.’ The Civil Association (Asociación Civil) is the form that charitable or nonprofit organizations adopt to operate, and is identified with ‘A.C.’
A Limited Liability Partnership (Sociedad de Responsabilidad Limitada), identified with ‘S. de R.L.,’ is similar to an LLP in the United States and has the option of having variable capital, indicated by ‘S. de R.L. de C.V.’ As this is a partnership structure—in other words, an organization formed by individuals as partners—it has similar characteristics to a Civil Partnership apart from unlimited liability.
A foreign company may open a branch (sucursal) in Mexico as an alternative to incorporating. A branch can provide rights and responsibilities similar to a corporation, including tax liability and access to local courts, but requires the approval of the National Foreign Investment Commission (Comisión Nacional de Inversiones Extranjeras or CNIE).
Consulting with a law firm in Mexico prior to establishing an office in the country is important. A partial list of Mexican law firms with international business focus and experience can be found at the U.S. Commercial Service Mexico Business Providers List. For other types of legal representation, contact our U.S. Commercial Service office in Mexico City to obtain the Embassy’s attorney list.
The Mexican market is mature and competitive but also very receptive to the franchise model, which has continued to see sustained growth in recent years. U.S. franchise concepts are well regarded in the Mexican market due to brand familiarity as well as the strong relationship between the two countries. According to the Mexican Franchise Association, the franchise industry is responsible for around six percent of Mexico’s GDP with more than 100,000 points of sale throughout the country from over 1,500 franchise concepts. About 85 percent of the franchises operating in the country are Mexican brands, 10 percent are from the United States, and the remaining percentage is shared by brands from Europe and Latin America.
Although the franchise sector in Mexico grew seven percent in 2019 and was on track for continued growth in 2020, the COVID-19 pandemic has greatly impacted the sector and the full economic effects on the industry remain unknown. As of June 2020, about 25 percent of the existing franchises were evaluating the possibility of closing given the economic crisis they faced during the pandemic. The Mexican Franchise Association has been working with the private sector to implement programs to help franchisors recover from this crisis. They plan to restructure existing operating models to include more technology, changes in space design to comply with new health regulations, and partnership agreements with local suppliers. According to industry experts, the franchise sector will have a slow recovery with minimal growth for the rest of 2020.
The food and beverage sector represents 35 percent of the Mexican franchise market, followed by retail, and then services in the personal care, health, education and business consulting sectors. The franchise model has been particularly successful for concepts that do not require high investment fees. Concepts with investment fees ranging from USD 50,000 to USD 250,000 have more opportunities to grow in the market than high-fee models. In 2019 some franchise companies started developing crowdfunding programs to incent participation of smaller investors and continue their expansion in the market. In only one year, 10 concepts have successfully achieved their expansion plans through crowdfunding opportunities, and it is expected that more local and international brands will adopt this model to finance their growth.
Traditionally, large cities such as Mexico City, Monterrey, and Guadalajara have been the dominant options for positioning a new franchise concept, comprising about 70 percent of the total number of franchises in country. Nevertheless, the development of franchise business opportunities has also been successful in smaller cities where local populations are looking for new products and brands.
Franchising in Mexico, as in any other country, requires a long-term commitment. U.S. franchisors must commit human and financial resources to develop a business plan (including market research) to identify the best strategy for growth, as well as flexibility to adapt to the local culture. Given that Mexico is so large and diverse, it is challenging to grant one master franchisee contract to develop the entire country. It is highly recommended to approach the country on a geographic basis and grant at least three regional rights covering Northern, Western, and Central Mexico. U.S. franchisors must support the master/regional franchisees throughout the business relationship if they want to be successful. One of the main challenges cited by franchisees is the lack of support from franchisors once the agreement is signed. Close communications with partners, continual training, and regular visits to the country are important to facilitating long-term success.
Franchising Legal Framework
Franchises in Mexico are regulated by Article 245 of the new Industrial Property Law (Ley Federal de Protección a la Propiedad Industrial). A franchise exists when, in conjunction with a written license to use a trademark, technical knowledge is transmitted to enable the franchisee to sell goods or render services using the operating, commercial, and administrative methods established by the holder of the trademark, with the aim of maintaining the quality, prestige and image of the products or services distinguished by the trademark. Franchising agreements must be recorded with the Mexican Institute of Industrial Property (Instituto Mexicano de la Propiedad Industrial or IMPI).
It is also important to register trademarks in Mexico to protect brands with IMPI. According to the law, a trademark must be used by either its owner, the licensee, or the franchisee of record, or it may be subject to cancellation due to non-use. The time frame for registering a trademark in Mexico is approximately four to six months.
The Mexican Franchise Association (Asociación Mexicana de Franquicias or AMF) is a private entity with over 25 years in the market. The AMF’s main purpose is to promote and develop franchising in Mexico, as well as to establish regulations to promote the industry, and work with public and private sectors to develop and implement programs to benefit the industry. It is mostly comprised of Mexican franchisors and franchisees as well as franchise consulting firms. More information about the AMF’s activities can be found at: www.franquiciasdemexico.org.
For more information on franchising opportunities in Mexico, please contact Commercial Specialist Martha Sanchez at Martha.Sanchez@trade.gov.
With the establishment of large international firms in Mexico and their emphasis on adopting similar marketing strategies to those employed in their home market, the marketing services industry has become more segmented and specialized, offering U.S. companies a complete array of marketing options. The most important promotional tools employed by companies include ‘above-the-line’ (ATL) methods such as paid digital media (and to a lesser extent conventional advertising) and ‘below-the-line’ (BTL) methods such as targeted marketing, trade shows, and direct marketing.
Small and medium-sized U.S. companies entering the Mexican market should work closely with their local distributor/representative in the creation of marketing plans. Mexican consumer habits have evolved to converge online and traditional shopping experiences. A recent study from the Association of Online Sales (Asociación Mexicana de Venta Online or AMVO) indicated that nine of ten Mexican shoppers interact between digital and physical channels, prior to making the final purchase, either online or in-store visit.
The leading association in Mexico that coordinates the activities of communication agencies is the Alliance for the Strategic Value of Brands (Alianza por el Valor Estratégico de las Marcas or AVE), that includes companies related to Branding, Marketing and Public Relations.
Alianza por el Valor Estratégico de las Marcas (AVE)
Cerrada de Palomas 36, Col. Reforma Social
11650 Mexico City
Phone: +52 (55) 2623-0561
Given the flexibility of engaging in joint venture agreements, U.S. firms frequently use joint ventures and licensing agreements to establish a presence in Mexico. Although some Mexicans rely on verbal agreements when doing business, we highly recommend you sign a written joint venture agreement with your Mexican business partner. According to Mexican law, joint ventures are considered separate entities from their parent companies and must register separately to pay taxes.
To safeguard intellectual property rights against third parties, licenses and patents in Mexico may be registered with the Mexican Institute of Industrial Property (Instituto Mexicano de la Propiedad Industrial or IMPI). Recording a license entails a government review that can take four to six months. For more information on IMPI, please see the Intellectual Property section.
U.S. professional licenses (e.g., engineer, architect, lawyer) are not generally recognized in Mexico. One must become accredited in Mexico or have a Mexican counterpart co-sign or validate the U.S. work. For example, a U.S. architect may draw up plans for a building, but a licensed Mexican architect must sign off on them. A list of local professional associations can be found in the Principal Business Association section of this guide. Instructions to register your professional degree in Mexico (information is in Spanish) can be found at the Secretariat of Education website. For additional information, please contact the U.S. Commercial Service in Mexico.
The parcel and messaging sector in Mexico traditionally operated as a basic courier service, with broad service windows and minimal guarantees on delivery timing and verification. For a variety of reasons, the sector has rapidly modernized as it has in the United States, extending the range of services and focusing on logistics efficiency.
The courier and parcel delivery market has an estimated value of MXN 73 billion (approximately USD 3.8 billion), of which 77 percent is national and 33 percent international. According to latest available data from the Mexican Association of Couriers and Parcels (Asociación Mexicana de Mensajería y Paquetería or AMMPAC), Mexican express delivery companies transported 67 million pieces in 2018. About 80 percent of local providers offer door-to-door service, while the remaining 20 percent provides complementary services such as intermediary transport and parcel tracking. In Mexico about 190 million shipments are made per year, representing MXN 220 billion (approximately USD 11.3 billion) in expenditures for logistics, operation and storage.
International express delivery services have grown even faster than domestic service, averaging double-digit growth annually. Analysts forecast the industry overall will grow in Mexico 15–20 percent through 2021; however, the largest companies will grow at a higher rate due to their capacity to invest in infrastructure and technology.
Approximately 3,000 courier and parcel delivery companies currently operate in Mexico. They provide local, regional, and international coverage. Competition is strong and varied in terms of supply, prices, and guarantees. Still, local courier companies complain that they do not face a level playing field when providing international services. They particularly cite terms negotiated under the original NAFTA—granting equal access to Mexican motor carriers entering the United States—which have not transpired. There are signs of some consolidation. though revenues are growing at a rate of 20 percent per year.
Express Delivery Investments
According to AMMPAC, recent investments in technology and infrastructure have driven the sector’s expansion. To match the growth of foreign providers, Mexican companies have invested significantly more than their foreign competitors. In 2017 and 2018, DHL, UPS, and FedEx increased their presence in Mexico with more e-customer shipping centers; however, local firms Estafeta Mexicana, RedPack and others continued to invest in technology, infrastructure, fleet modernization, points of sale, operating centers, and customer service. These investments are in addition to the over USD 2.15 billion invested by these companies between 2013 and 2017.
The goal of these companies is to differentiate based on their ability to harness big data intelligence to minimize the level of misdirected shipments, incorrect routes, and losses and damage to packages.
Extension of Express Delivery Services
Another reason for the growth of the sector is the incorporation of a wider range of services. Companies are competing aggressively on shorter and guaranteed delivery times, efficiencies through route consolidation, customs clearance expertise, geographic scope in cities served, and service reliability through technological improvements such as satellite tracking. Altogether, this competition has increased domestic penetration for same day or overnight service to more than 50 key Mexican cities.
Several sectors have particularly benefited from expansion of express services. These include computers, spare parts, high-value products, and industries using just-in-time supply chains such as high technology, automotive, pharmaceuticals, textiles, and manufacturing. Consequently, these sectors have been key to driving ever-greater cargo volumes through express services.
Future Express Delivery Trends
For a variety of reasons—from the extent of rural areas to high security costs protecting shipments from organized crime—Mexico has relatively high logistics costs in contrast to labor costs and customer demand for ever lower pricing. To support further growth of the sector, AMMPC is calling for progress on several challenges, including improvements in the legal framework for express delivery and efforts in combatting organized crime.
In the short term, the sector will continue to work on a wider range of integrated logistics solutions beyond transportation. It will also seek improvements in customer service, communications tools, and faster response times to requests. The sector further plans to tailor services to the diversity of industries that most demand express service, from banking services, textiles, and apparel to electronics, pharmaceuticals, and cosmetics.