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Foreign Direct Investment in Mexico: how does it work?

Starting a business in a foreign country is a challenging decision, but sometimes it is the best way to achieve growth. If you want to know how Foreign Direct Investment in Mexico works—in order to decide if this is the best place for you—we will explain it for you.

If you are already involved in the manufacturing industry, perhaps you have heard of Mexico’s good reputation; the qualities of the countries’ system make it an ideal place to invest. This is due, in part, to the maquiladora model, with which companies receive some cost benefits.

The Maquiladora Program

A maquiladora is a manufacturing plant, but it is also a business model born in Mexico. To run a maquiladora, a foreign company has to set up an additional plant in Mexico, besides the plant that already exists in the country of origin.

It is important to mention that submitting an application to Mexico’s government is a requisite to operate maquiladoras in Mexico. After this, companies benefit from this program because they do not pay taxes or duties for temporarily imported materials.

Manufacturing models

There are four types of manufacturing models for foreign companies:

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  • Direct ownership
    This model allows the investing company to settle in Mexico and manage its financial, legal and administrative operations autonomously, having a total corporate presence in the country.
  • Shelter
    This is a form of outsourcing, where the foreign company hires administration and manufacturing services without having to worry about operating; it will simply receive the final manufactured product.
  • Subcontracting
    When a company requires manufacturing services, it can assign production to the manufacturing company of its choice.
  • Joint investment
    When a company already exists in Mexico, another foreign company can join the operation to create a larger company.
Government incentives

Depending on the city you decide to set up your company, different benefits can be granted by the local, state and federal governments. For example, the city of Tijuana offers additional benefits because the region seeks government collaboration to generate plans and programs to promote foreign investment and business opportunities in Mexico, as well as flexibility to reach agreements.

This is just a general idea of how foreign direct investment in Mexico works. If you would like to get more valuable information, we advise you to contact Tijuana EDC, the foreign investment experts.

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