Taboos and How To's about Earning an Honest Peso

By Becker, Thomas H. | Management Review, June 1991 | Go to article overview

Taboos and How To's about Earning an Honest Peso


Becker, Thomas H., Management Review


Mi cas su casa. This gracious invitation to Mexican hospitality has not been offered so unhesitatingly since Herman Cortes sacked the Aztec empire. Now, however, a different breed of guest is being welcomed south of the border. Foreign executives, drawn by attractive business opportunities and new laws favoring foreign investment, are looking to Mexico with renewed interest.

The historic strides taken by that country in the last six years to reverse a downwardly spiraling economy are beginning to pay off, and many feel that Mexico may be poised for a recovery that could continue well into the next century and make it one of the fastestgrowing economies in the world.

With such bright prospects for the future, everyone should jump at the first opportunity to invest in Mexico, right? Wrong," says Augie Garcia, president of ATI International, a Tucson, Ariz., trading company that began operations with Mexico five years ago. "When I first began doing business in Mexico, I had excellent product lines, knew first-rate contacts, had a working capital reserve ... and for two years proceeded to lose my shirt!"

Garcia, an affable, bilingual American of Mexican extraction who had traveled extensively to Mexico prior to starting his own company, made one vital mistake: He didn't realize how crucial it is to reconcile the differences between doing business in the United States and doing business in Mexico. He has since learned, however, and ATI's shipments across the border have been growing briskly for three years.

"Until I almost lost my house, community position and self-confidence," cia remembers, "I didn't recognize that what can be a formula for success in one country may be a recipe for disaster in another."

One way to minimize disaster when you cross the border is to make sure you're not going to Mexico for the wrong reasons. It seems hard to believe, but many foreign business failures in Mexico occur because the investors throw caution to the wind and make decisions that they would fire a subordinate for making at home. Some of the reasons often heard for going into business in Mexico, and the arguments against them, include:

Fi I've got an influential contact in the government who will 'take care of things' for me." Beware. Mat contact also could be your competitor's, customer's or supplier's contact; or he/she could be the new owner of your business following a liquidation auction of its assets. If you don't trust politicians in the United States, why should you in Mexico?

r-1 "Detroit winters are miserable. If I open an operation in Mexico, the IRS will subsidize all the sunshine, beer and shrimp I can handle during my 'official'visits there." Risking big dollars on an ill-planned venture to save fewer dollars on tax-deductible junkets is not likely to win any performance or strategic planning awards. Besides, how much can you enjoy the beach if you're losing your swim trunks on your Mexican operation? "My partner speaks Spanish fluently and has family connections in Mexico. With his knowledge, we should be in control of the market after the first year in operation." How many bankruptcies do you suppose are filed in the United States each year by fluent English speakers with family members also residing in the United States? THE LEGAL CLIMATE

Once thought by many to be the archetype of Third World mismanagement and economic nationalism, Mexico can now compete as a major league contender for international investment capital thanks to a 1989 overhaul of its foreign investment laws. Under the new rules, bureaucratic red tape has been minimized, and the economy has been opened to much broader participation by foreign capital. As a result of the 1989 foreign investment regulations, foreign business executives feel welcome in Mexico and confident about being able to carry out long-term plans there.

The most striking changes under the new regulations are the precise conditions that define to what extent foreigners may invest in Mexico. …

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