Doing Business in Reynosa, Mexico
Along the Rio Grande at the southernmost area of Texas, the McAllen/Reynosa metro area is one of the most robust manufacturing centers on the United States-Mexico border. Unfortunately, much like it sister cities of Ciudad Juarez and Tijuana, it is not without complication as it contends with drug trafficking violence.
The area hosts a combined population of more than 2 million people, citizens living and working on both sides of the border. The geographic location of Reynosa makes it a center point for commerce between Mexico and the United States and the largest employers are maquilas or maquiladoras (factories) that thrive due to the North America Free Trade Agreement (NAFTA)
Over 5 million vehicles cross the bridges across the Rio Grande annually into Reynosa making it one of the most significant overland ports of entry for manufactured goods.
Driving from McAllen Tx to Reynosa Mexico involves the crossing of the Rio Grande. You can view the status of the bridge traffic cameras live to get a sense of the high volume of traffic going in and out of the United States.
The Federal and State governments provide free universal public education for six years of primary school and three years of secondary. The three largest universities in Mexico also receive federal funding. There are also many private schools and private universities as well. Many of the private universities are run by religious orders.
A rapidly increasing population has strained the education system considerably and there is enormous demand for new schools to be built all over the country. In 2008 Mexico signed a new bill stating that 22% of government spending was to be on education. That is the highest percentage of all OCDE participants.
While Mexico as a country produces more and more IT laborers, along the border and in cities like Reynosa this type of high skill labor is generally does not stay in Reynosa but instead moves to Monterrey or Mexico City in pursuit of higher wages. For this reason, and due to the fact that Reynosa is a manufacturing economy, the skill sets of employees you may be looking to hire will be here in abundance, even if you have to compete with other companies for the best talent.
Mexico is a Federal Democratic Republic with 32 states. The President is directly elected by popular vote and serves one six-year term. Cabinet members are appointed by the president and approved by the senate. The legislature is composed of two houses, the Senate and the Chamber of Deputies. The Supreme Court has 21 members appointed by the President and also approved by the Senate.
You will find that Mexicans know more about U.S. politics than we know about theirs. In a town like Reynosa, the majority of the population has either family living in the U.S. or has spent a great deal of time in the U.S. Keep this in mind when discussing U.S. politics or public policy as everyone in Reynosa understands that their livelihood is driven by public policy and is not an abstract or academic conversation as it may be in a place such as Mexico City.
An industrial hub is a group of related business that come together to increase productivity and efficiency in order to become more competitive and to increase quality. Think of a major manufactured good and chances are decent that it was manufactured by a company that produces at least some of its components at a maquiladora in Reynosa. Companies range from Daimler, Emerson, John Deere, to numerous other Fortune 500 companies.
Logistics and Importing Center
McAllen-Reynosa gives importers an alternative solution. Importing goods into the United States from the Reynosa industrial centers can significantly reduce logistics costs and import taxes. In the past, imported goods change hands a few times and each turnover involve wait times and additional costs. Now parts or finished goods can come into Mexican ports on the Pacific or Gulf Coasts and can then be brought to Reynosa for final assembly if not complete products. Once complete, these goods can then be imported on average 3 days faster and at a 25% reduction in importing costs than coming directly to the US.
Trade Agreements and Benefits
By opening operations in Reynosa, a company receives the benefits of all of Mexico’s trade agreements. Many of these agreements have more beneficial terms than the same agreements in the US. Mexico has Free Trade Agreements with 45 nations. Mexico’s import/export costs are far below what most countries’ rates are.
Legal and Financial Considerations
The Mexican Peso and it is divided into 100 cents. The symbol is Ps$ or more commonly just $.
Companies and branches of foreign corporations as well as partnerships are the most common companies in Mexico.
Common Corporate Types
- Corporation (Sociedad Anonima S.A.)
- Corporation with Variable Capital (Sociedad Anonima de Capital Variable S.A. de V.)
Companies are formed by incorporation and registration under the appropriate articles of incorporation. Every company has a corporate charter which contains the articles of incorporation and establishes rules for its administration and management.
Three main legal frameworks for corporate law in Mexico
- General Mercantile Corporations Law
- General Credit Securities and Operations Law
- Commerce Code
The legal working day in Mexico is 8 hours, with a 6-day work week. Up to 9 hours of overtime are allowed in any week. The most common work week is Mon-Fri, 8 hours a day. Overtime pays 2X regular hourly pay. Paid vacations are a right of workers. It is based on a graduated scale. One year of service equals six days of vacation. It is maximized at 22 days a year with 25 years of service. Severance payments are paid to employees discharged without justification and they are entitled to three months of income plus another 20 days for each year of service. All employees are entitled to 15 days salary paid before the 20th of December each year as a Christmas bonus.
Tax Regime- Mexico has Federal, State and Municipal taxation. The main Federal taxes are income tax and Value Added Tax VAT. Corporate income tax is 30% less authorized deductions. VAT, or Value Added Tax is 16%.
Why Reynosa and McAllen TX?
The McAllen metro area of Texas is the 5th largest in the state. Reynosa, Mexico is just across the border and boasts a population of over a million residents. The area continues to grow both in industrial power and population as more companies and workers see the benefits of living and working in the area.
One of the largest benefits of the McAllen-Reynosa is the ability to live in the US and run your business in Mexico with all the financial benefits that come with it. There is also a program called Border Flex Advantage that allows one to choose between two taxing systems.
The position of Reynosa along the Texas border is right in the center of the US economy. Equidistant from both the Pacific and Gulf coasts, transportation of goods to the Reynosa area is quick and affordable. The ports of Manzanillo, Lazaro, Cardenas and Altamira are all easy ports to utilize for importing/exporting. There is a new rail system from these ports to Reynosa. This efficient system can save 20-25% for companies. Once the goods are in Reynosa there are over 140 logistics companies that specialize in cross border logistics.
Reynosa is home to around 60% of all industry in the northeast of the state of Tamaulipas and contributes to about 3.1% of Mexico’s gross domestic product (GDP), according to the municipal government. The city’s economy is growing at a rate of around 2% annually and in a population of 700,000, there are 210,000 workers. The city’s maquiladoras, or factories, provide the biggest source of employment but significant numbers of people also work in the transportation, construction and agricultural sectors. Last year, the combined value of goods that were imported to and exported from Reynosa was more than 762 billion pesos (US $41 billion).
Cost of labor is a major benefit for companies that have labor intensive industries. The median age is 27, so the population is young and eager to work. Companies can split their operations and based the labor-intensive portion of their business in Reynosa and the distribution centers that are capital intensive in Texas.
Getting into Reynosa
Reynosa does have an airport, but with no direct flights from the United States, most visitors fly into McAllen International Airport and drive over the border. There are numerous flights into McAllen from El Paso, Houston, and Dallas. From McAllen there are several border crossings. It is not recommended that you drive yourself over the border, but instead, travel either with your Reynosa hosts or hire a local security focused transportation company. We cover the specifics of getting into Reynosa in more detail in Travel and Transportation in Reynosa overview.
Security Situation in Reynosa
Reynosa sits in one of the most hotly contested areas of Mexico in the ongoing disputes between warring drug cartels. Specifically, in the last couple of years, the state of Tamaulipas has seen extraordinary amounts of violence due to conflict between the Gulf Cartel, the Zetas Cartel and a relatively new cartel called Jalisco New Generation Cartel. The Gulf cartel has been the patron of Tamaulipas state historically, but in recent times has lost considerable power due to assassinations, competition and the arrest of several of its top leaders. The other cartels have taken advantage of these arrests and assassinations to further weaken the Gulf Cartel.
With the economy growing so quickly, it is easy to forget the fact that the city of Reynosa is one of the most violent in the country. The city is better known for its bloody confrontations than it is known for its booming industry. Mexican President, Enrique Peña Nieto, recently cancelled a trip to Tamaulipas , his office did not confirm why, raising rumors that gun battles in downtown Reynosa triggered the move. For many Reynosa’s violence is a far-away threat and one that can avoid by avoiding the area, for residents of the city it is very real: in a recent poll around 95% of the population said they feel unsafe.
Narco-blockades are where criminal gangs set vehicles alight on the city’s streets to obstruct security operations, and are one of the biggest problems, creating chaos and terrifying residents while also impacting negatively on commerce. Outbreaks of violence can sometimes make it impossible for workers to get to their jobs. There have been countless firefights between cartels that have broken out in broad daylight on major thoroughfares.
Intentional homicides increased in Tamaulipas by 24.5 percent last year - to 804 from 615, according to statistics from Mexico's National Security Commission. Other major offenses, as Mexicans call those usually related to organized crime, also increased in the same period, with extortion and violent car robberies both rising by 40 percent. The rate of intentional homicides was 28 percent, second in the state only to the capital of Victoria.
What does this mean for me? Can I do business in Reynosa?
Even though Reynosa experiences significant levels of crime that are unseen in the US, business can and is done there every day. There are several risk mitigation techniques a traveler can employ in order to stay safe in Reynosa. The most susceptible place to be in Reynosa is in a car. Not because Americans are targeted but because that is where a traveler runs the risk of becoming an innocent bystander to some type of cartel activity. Road blockades, shoot outs between armed groups, kidnapping etc. are all at increased level of probability when moving around the city. Having your host provide transportation or procuring a secure vehicle and driver are important and simple ways to significantly lower one’s risk profile in Reynosa.
In addition to having secure transportation, it is advised to stay overnight on the Texas side of the border. In a perfect situation a secure driver would pick you up in Texas in the morning, take you to your business location in Reynosa and deliver you back to your hotel at the end of the day, well before sunset. Secure driver services also should have the ability to monitor the security situation in real-time so they are up to date with any and all security events as they transpire.
It is important to note that US based business travelers are not the target of the violence in Mexico. The violence is all directed between the warring cartel factions for control of the supply routes into the United States. US based travelers’ main risks are becoming unwittingly involved in a shootout and being stopped at an illegal roadblock. While there are no guarantees of safety, taking a measured approach and using an intelligence lead, risk mitigation plan, that incorporates safe transportation and active threat monitoring can greatly reduce the likelihood of an adverse event.