In recent decades, Mexico has become a strong and stable economy on a global scale, encouraging and attracting local and foreign business opportunities. Economic similarities between other regional powers generate valuable opportunities, such as those for Australian companies in Mexico.
This is attributed to fruitful trade deals, competitive cost structure, openness to Foreign Direct Investment (FDI) alongside many other factors. Mexico now boasts the second largest GDP in Latin America and offers a stable and increasing economic growth.
Government initiatives set to boost business opportunities in Mexico
The current President Andre Manuel Lopez Obrador (AMLO) has pledged to reduce the inflation to 3%, increase spending on local infrastructure, and invest in supporting lower socio-economic groups through providing jobs. Furthermore, AMLO has increased the minimum wage and provided government assistance for those needed.
With the AMLO government pro-growth vision combined with lucrative business opportunities, Mexico is on the path to be a significant global economic powerhouse in the decades to come. We discuss business opportunities for Australian companies in Mexico.
Mexico-Australia economic relationship at an all-time high
The trade relationship between Australia and Mexico remains healthy and vibrant. In 2014, Mexico was Australia’s largest trading partner in Latin America. The signing of the Tran Pacific Partnership Agreement (TPP) in 2016, has been a substantial trigger for increased interest and flourishing trade relations for Australia-Mexico.
The vast distance between Australia and Mexico, combined with a language barrier, has long been a deterrent for Australian businesses wanting to establish themselves in the Mexican market. Furthermore, a lack of understanding of the Mexican business market and business culture has left investors in the dark of what Mexico has to offer Australia in terms of thriving business opportunities.
How can Australian companies establish themselves in Mexico?
The Mexican government has welcomed business opportunities by reducing bureaucratic steps for market entry and lowering operational business costs. The government also allows 100% foreign ownership.
The weak peso allows for small to medium Australian companies to expand into Mexico with relatively low capital.
To incorporate a business in Mexico, you must appoint a knowledgeable legal representative to act on behalf of the business. This can be either a Mexican national or a foreign citizen who has a legal right to work in Mexico. You can hire an external private service provider to act as the legal representative for your company in Mexico.
When hiring a professional service provider, make sure you choose a company that specializes in back-office services in Mexico specifically, due to the country’s strict requirements. A trusted service provider will also have a strong understanding of the Mexican market.
Forming a Limited Liability Company (LLC)
In Mexico, many foreign companies decide to incorporate Sociedad de Responsabilidad Limitada, S de RL. The S de RL is similar to the Limited Liability Company (LLC) in the United States. This type of legal entity is formed with 2 shareholders (an individual or a legal entity that can be either local or foreign). This process will involve obtaining a tax ID number and opening a corporate bank account.
Once the company is incorporated, you will be able to begin commercial operations and reap the business opportunities Mexico has to offer.
Opportunities for Australian mining companies in Mexico
Mexico’s geographical location plays a strategic role in the success of its mining industry with its close proximity to the US. Enabling Mexico’s largest mining trading partner to the US. Mexico is home to three vast mountain ranges in the north known as, Sierra Madre Oriental, Sierra Madre Occidental, and Sierra Madre del Sur. These mountain ranges are enriched with minerals and have enabled Mexico to be one of the top global producers of gold, copper, zinc and the largest producer silver in the world.
Mexico’s mining industry has long been a critical economic contributor to the Mexican economy thanks to its proximity to the United States. In 2017, Mexico’s mining industry contributed 2.5% to the national GDP and supplied 2 million jobs both directly and indirectly. Mexico’s mining industry is forecasted to continue growing, with annual sales expected to average a 2.8% yearly growth. Mexico’s FDI in mining ranks an astonishing fourth-largest in the world for mining and the first in Latin America.
Australian mining outputs
Australia is the fifth-largest mining country in the world. Many experts consider it the backbone of the Australian economy, which has kept Australia stable through turbulent economic times.
Over recent decades Australia has relied heavily on China, which in 2019 Australia reported a whopping AU$278 billion from mining-related exports. However, in recent times China has become unstable due to its unpredictable government, ongoing trade wars between the US, and frequent delays imposed on Australian coal shipments at Chinese imports. This has been a warning sign to Australia that it must diversify its major revenue generator to other foreign markets like Mexico.
Room for Australian mining services
Presently, Mexico is home to only two Australian mining operators and 15 Mining Equipment, Technology and Services (METS) companies. Although Mexico mining operations have become a saturated market with US and Canadian mining operators controlling a large share, there remains ample business opportunity for companies specializing in METS.
Due to Australia’s long mining history combined with its wealth of experience, Australian mining and mining services companies have the opportunity to play an essential part in Mexico’s mining sector. The TTP agreement eliminates tariffs for Australian exports on mining equipment, further promoting Australian activity in this sector.
Obtaining a mining permit for foreign investors will depend on the location and the type of mineral that the company will be mining. It is advised that you contact a local mining law expert to understand the requirements for your mining permit in Mexico.
Bring mining innovation to Latin America
Australian mining companies have established themselves as innovative leaders in METS by upgrading new mining software and equipment such as:
Tech developments like the cave tracker, which uses beacons and detectors inside mines to relay information and data electronically. It provides greater insights into the environment of the mine, improving safety and understanding with a wireless user interface and minimal human intervention inside the mine.
Internet of Things (IoT) is the connection of machines, devices, sensors, appliances and equipment to the internet. IoT is helping operators to understand if there is a breakage or deterioration in performance, enabling them to quickly react and rectify the issue at hand.
Artificial Intelligence (AI) uses different algorithms to organize and understand vast amounts of data with the purpose of creating of making optimal decisions. AI has been extremely beneficial in the prospecting phase, especially for discovering deposits.
These innovative approaches are in high demand in Mexico, as it allows mining companies to operate efficiently and effectively. Therefore, Australian mining companies will be able to differentiate themselves from their competitors and capitalize on the thriving mining industry.
Mexico as a gateway into the United States
Mexico is geographically situated on the doorstep of the United States home to the largest GDP in the world has FDI in Mexico flourishing. This can be widely attributed to secure market entry, the low value of Mexican peso, skilled labor, and lucrative trade deals between both countries.
Considering the extensive geographical distance between the US and Australia, small-medium companies do not have the capital to expand to the US because of the sizeable operational cost involved. These smaller companies are not able to afford to have their goods shipped due to the high cost and time delay between manufacturers to consumers. Furthermore, the US has strict tariffs and regulations, deterring Australian small-medium businesses wanting to import into the US.
Fortunately, the US and Mexico have a fruitful trade agreement, which allows for a fluid importing and exporting relationship between both countries. By establishing a company in Mexico, Australian businesses can use this as a base to export into the US with ease, time-saving, and reduced costs.
Capitalize on lucrative opportunities in Mexico now
As the Mexican economy continues to grow into an economic powerhouse, the window of opportunity for Australian businesses to capitalize on it decreases. Australian opportunist needs to understand the market before entering and hiring a reputable Mexican company to assist you with company formation as it can be reasonably complicated.
Contact Biz Latin Hub to start your business in Mexico today
Business opportunities from Australia into Mexico offer significant opportunities to expand and increase growth and revenue. Australian companies must look to diversify into markets like Mexico, which have proven to be stable and lucrative opportunities. To expand into Mexico with fluidity and confidence, engage with Biz Latin Hub for assistance.
Make sure to get up to date on the market and legal requirements to be compliant. The best way to do this is to consult a local legal expert who can guide you through on how to obtain the correct mining permit and the incorporation process for your company, to ensure that your business is fully compliant.
At Biz Latin Hub, our team of multilingual legal and accounting professionals provides expert advice to ensure your company starts off on the right foot and has the opportunity to grow successfully.
For personalized advice on your company expansion into Mexico, contact us here today.
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