Manage your Business Risks with Due Diligence in Mexico

When doing business in Mexico, managing your business’ risks with due diligence practices is essential to its success and longevity.

Language and/or cultural barriers, understanding the market and the way of handling businesses are challenges that foreign business owners can face when expanding abroad. Buying existing companies or partnering with locals are key ways to reduce these challenges and get support navigating an unfamiliar market.

However, it’s imperative to protect yourself when undertaking either of these processes in Mexico by conducting thorough due diligence checks of the companies and people you will surround yourself with.

The purpose of this process is to minimize the risk present in a transaction by performing a detailed and independent analysis of the various business departments of the firm. 

Find out more about due diligence in Mexico and how to manage your business risks.

Law books and Judge gavel
Reducing risks and being prepared is key for starting off on the right foot in Mexico.

Why is due diligence important in Mexico?

Due to its strategic location and large population, Mexico is an attractive base for setting up a business in Latin America. Over the last decades, Mexico has attracted an enormous amount of foreign investment, and increasing numbers of large companies are establishing themselves in the country. These companies commonly enter the market by buying existing companies that hire local employees, or by partnering with other local companies.

Despite this, commercial security remains a challenge for Mexico, and companies are encouraged to protect themselves through due diligence checks. 

Performing proper due diligence checks in Mexico ensure the investors that such companies are compliant with all local corporate and employment regulations, and if not, they are aware of the potential repercussions of non-compliance. Reducing risks and being prepared is key for starting off on the right foot in Mexico.

Embassies and industry professionals strongly recommend businesses seek specific advice in order to minimize operating and security risks.

Common challenges for foreign businesses in Mexico

Experiences from past due diligence examinations and ongoing market observations identify four main risk aspects: 

1. Corruption and money laundering 
2. Financial consequences (penalties) 
3. Reputational risks 
4. Economic risks when buying or merging companies and/ or organizations 

Some additional challenges include:

  • Mexico is an open and competitive market 
  • Building and maintaining relationships with clients and distributors is time-consuming 
  • Language and cultural barriers can slow the speed of doing business and developing your brand 
  • A legal requirement to label products in Spanish

What kinds of due diligence exist?

  • Economic, technical and organizational 
  • Background checks of managers and employees 
  • Legal and tax audits 
  • Operational due diligence (ODD) for the assessment of risks and potential for appreciation of the target object 
  • Market due diligence to examine the current and future market situation of the targeted company 
papers and folders
Due diligence checks are commonly carried out in three different steps.

The due diligence process 

Due diligence checks are commonly carried out in three different steps.

1. Identification and information collection

Typically the due diligence process starts with the identification of the person(s) or organization(s) required to undertake a review.

In the case of organizations, information is collected about the company, its shareholders, beneficiaries, the group structure, board members and their political relationships. In this phase, official documents and contracts can also be requested.

Individuals have to provide proof of identity and sources of funding. They may be asked about their political and commercial connections depending on the requirements of the planned transactions.

2. Sanction list check 

In the second step, the lawyer checks possible matches with global sanction lists. In parallel, lists of law enforcement, disqualification, and individuals designated by government agencies are also included. There are often lists, with companies which don’t desire business activities. Politically exposed persons are identified, compared with certain lists and, if necessary, subjected to a risk check.

3. Risk evaluation

Based on the outcomes of the investigations, the group conducting the due diligence checks must then provide evaluations, including risk assessments, to the third party company. That company may then make a decision on how to proceed with their relationship with the person or organizations reviewed.

Get support at Biz Latin Hub to manage business risks with due diligence in Mexico

Protect your company from non-compliance and other potential risks by seeking out due diligence services in Mexico from a trusted team. Engage with a local multilingual team experienced in conducting thorough checks on company and employment circumstances in Mexico, so you can make informed decisions about your business venture.

At Biz Latin Hub, our team of bilingual professionals in Mexico have the knowledge and experience in due diligence reviews to ensure your company is protected while it makes new connections in Mexico. We support new market entrants and existing companies looking to acquire new businesses or hire new staff.

Get in touch at [email protected] now to manage your business risks in Mexico. 

Learn more about our team and expert authors. 

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