Transitioning from a China negotiating mindset to the Mexican Way.
You’re not in China anymore. MNCs have been rapidly expanding their Mexican presence for the last 5 years, and even the Chinese have been active. Now it seems that successful medium sized enterprises & entrepreneurs are stepping up the nearshoring plate.
While the MNCs and Chinese champions have been EXPANDING their supply chains into Mexico, for many smaller operations, the nearshoring process is an all-in commitment on a completely new supply chain.
Introduction: Negotiating Culture
What is a negotiating culture, and what does it means to nearshorers?
Negotiating culture is a subset of the business culture, which is part of national culture. For front-line dealmakers, this translates into:
- Relationship management
- Cross cultural communication
- Attitudes towards time, trust, and honesty.
Warning: Any similarity between Mexican and Chinese negotiating culture is purely accidental and superficial and should be disregarded immediately.
The challenge for SME nearshorers is that their hard-won China negotiating skills aren’t transferable to Mexico. The negotiating cultures in each country are completely different, and what worked for you in Shenzhen will fall flat in Monterrey & Guadalajara.
Chinese negotiators are known for patience and pragmatism. Mexican decision-makers tend to be more skeptical and decisive – especially when the answer is NO. Americans are aggressive and deal-oriented, but their enthusiasm doesn’t always serve them well across borders.
If you’re one of the non-Fortune 500s still on the sidelines about Mexico, here are 5 shortcuts to a more successful negotiation.
5 Keys to Understanding Mexican Negotiating Culture
- Mexico is not a new discovery.
MNCs – particularly automakers – have been active here since the 1980s. New arrivals will be jumping onto the end of a growing line of applicants for land, employees, and resources. - Same relationship issues, new challenges.
Both Mexican and Chinese negotiators expect you to build a relationship, but the similarities end there. - Different ASKS – or negotiating variables.
Chinese factory managers did more for you because of their connections and network. Mexican operations professionals will judge you and your proposal by how complete and well-integrated it is. - New cost structures, new risks.
Compliance costs and logistics risks are skyrocketing – changing the economics of many business models. It’s your job to collect & analyze the right data. - Mexico isn’t cheap.
It’s a productivity & logistics play now.
Rule 1: Mexico manufacturing is not a new discovery.
US-based MNCs have been relying on large-scale Mexican manufacturing since the 1980s. This is especially true in the auto-industry, which pioneered the modern concept of the Maquiladora zone along the border.
The good news is that all the rules, regs, and infrastructure (such as it is) have already been put in place. The less good news? You are getting on the end of a very long line for available real estate, labor, water, electricity, and logistics.
The international part of the Mexican economy is closely aligned with US markets, so it favors businesses that can integrate with existing supply chains.
This was also true in China, but Mexico lacks the OEM/contract manufacturing segment that powered much of the innovation and brand-bootstrapping of China’s “factory to the world” approach. Mexico does not want to be factory to the world. It wants to be factory to the Fortune 500, and if you don’t fit in with the business model you may have to work harder to find partners and suppliers.
This is a good time to point out another stark contrast between China and Mexico, which is government involvement in economic development. China had too much; Mexico not enough.
There’ll be no 5 Year Plan or Special Economic Zones to boost activity or fine-tune development. Some states and cities will incentivize certain types of investment, but by and large you are expected to play the hand the market deals you. At the moment, that means waiting patiently for new industrial and commercial properties to be zoned, approved, prepped, and turned into industrial parks and logistics hubs. The central government won’t be clearing any villages or farmland for factories in Mexico.
Sometimes the key to success in Mexico is getting on the right waiting list early, and you may have to wait for the sites you want.
Rule 2. Same relationships, new challenges.
Both Mexico and China are “in-group” negotiating cultures, so you’ll have to invest time and energy into building relationships. The similarities, however, end there.
China had a 12-hour time difference, major language barriers, and an unfamiliar corporate culture. There were buffers. Mexico is more aligned with the US than China. There’s not even a significant time difference. In Mexico you pick up the phone and call them in their office in real time.
The closer you get to the border; the more closely Mexican management & operation teams identify with HQ. Their MNC counterparts are running cross-border teams and getting posted to senior positions in Texas and other parts of the US. As the HR market continues to heat up in Mexico, nearshorers have to adjust to the idea that they are in a sellers’ market for talent. You are being judged on your plans to recognize and develop talent.
Mexican managers are also big fans of training – especially manufacturing quantitative stuff like 6 Sigma and The Toyota Production System.
Use Mexican aspirational patterns early in a negotiation to leverage relationships. They are on the same org chart, the same time zone, the same teams, and conference calls.
In China the concern was that high-impact managers would leave to set up their own competing operation or join a national champion. In Mexico managers want a path up the company ladder – and that may include some time in the US.
Rule 3 Different ASKS – or negotiating variables.
Mexican counterparties do a much narrower range of activities than you saw in China. Unlike their counterparts in Shenzhen and Shanghai, Mexican managers probably don’t plan on using their own network for anything – rather they are very clear about expecting to benefit from yours.
That’s something you can try to change — or something you can make money off at the expense of your competitors. Hint: Variable/Deal-point selection is key. Understand what potential partners, clients, and hires want in advance, or make that the first part of your negotiation. It’s a sellers-market for HR talent in Mexico, so plan on doing some persuading when hiring. They want to see a clear path upward, including training leadership opportunities.
Chinese factory managers were willing and able to do more for you because of their connections and network. They knew sources, service providers, workshops, truckers, etc. A good Chinese factory manager always knew a guy. For SMEs and small brands, this often meant that they could outsource much of their design and operations planning in China.
Mexican operations professionals will judge you and your proposal by how complete and well-integrated it is. Reverse engineering is a dirty word among Mexican factory management. They don’t like filling in gaps or improvisation here.
Rule 4: New cost structures.
The world has politics and strife and drama … what it means to you is skyrocketing compliance costs and new risks. Complying with both US and Chinese rules will be next to impossible for some businesses.
Will a Mexican presence help manage international trade tensions? Definitely maybe. But this is one area where you need expert advice on a case-by-case basis and a fully compliant process carried out by a 100% legitimate organization.
I was in China during their SME boom, and everyone had funny stories about how their tax bill was negotiated by a 22-year-old receptionist from Anhui, or how their financial services firm was officially registered as an agricultural consultant for the first five years. This stuff isn’t funny in Mexico.
They’re not as stampy as Chinese bureaucrats, but they still love their rules & regs. And that’s just on the official side.
A Mexican or LatAm presence will help you manage international trade in a Globalism 2.0 environment, but it may not be speedy.
The first thing SME managers need to do to make Mexico work is to figure out how to comply with IMMEX and USMCA. I won’t bury you with details right now – it should suffice to say that IMMEX reduces/eliminates duties on imports to Mexico and USMCA reduces/eliminates duties on exports to the US.
A lot of manufacturing business models depend on IMMEX and USMCA regulations. Compliance is RELATIVELY straight-forward if you do the planning early, but very difficult after your supply chain is already set.
You might decide that finding a manufacturing partner in Mexico is the way to go, and you could be right. But good partners are hard to find, and they may not share your values or methods. In China, partnership negotiations drilled down to financial considerations right away. In Mexico the situation is often more nuanced, especially when your potential JV target is a family business.
Rule 5: The End of Cheap Mexico.
Inflation, adverse currency moves (for the USD), and a tight labor market have eroded Mexico’s price competitiveness. The currency shift has threatened to wipe out Mexico’s favorable tariff situation, but that looks slightly better now. Still, in addition to currency there’s inflation, real estate, water, waste, and electricity to worry about.
Mexico is still a great option, but it isn’t VERY cheap anymore. There was never a China-style “race to the bottom” here. Come to Mexico to for the strategic opportunity, not the quick low price.
On the positive side of the balance sheet, Mexico has a 2,000-mile land border with the world’s biggest market, a very favorable regulatory & customs relationship, and an attractive cost base. Labor is cheap(ish) and available.
By almost every measure, however, Mexico has gotten more expensive since Covid. That’s why it requires a high degree of planning, integration, and possible new product development to adequately prepare to nearshore to Mexico.
Conclusion:
The US, Mexico, and China each have a different negotiating culture, and it’s up to you to manage the differences as you navigate the perilous waters of Globalism 2.0.
- US: aggressive transactors.
In some ways, China was a very forgiving environment for US investors, because Chinese counterparties were eager for a deal and expected a big culture gap from the outset. In Mexico, US negotiators will meet counterparties intimately familiar with US culture and much more willing to refuse deals or turn down negotiations completely. US negotiators should temper their priority to return home with a signed contract or order, and focus on building relationships.
- Mexicans: decisive skeptics
Mexico is a negotiating culture that doesn’t like risk or loose ends. A Mexican decision-maker has clear ideas about the kind of deal he wants to sign, but it may be up to you to draw out that information. In general, Mexican operations & factory managers want to see a complete plan, including bills of materials, and a complete sourcing & procurement plan. Chinese factory managers were often willing to help with sourcing, procurement, and design issues – this will be much less common in Mexico. Mexican negotiators are much more willing to give you a firm “no” than Chinese counterparties.
- Chinese: patient pragmatists
Chinese negotiating culture can be labeled “patient pragmatism”. Chinese negotiators believe that the ability to network and develop connections is part and parcel of their business skill – even if they often have difficulty crossing cultural borders. Chinese national champions are already operating in Mexico, and there are indications that these giants are pulling in their Chinese supply chains. But overseas Chinese managements are known for being difficult to work with, and anyone counting on the arrival of the Chinese to spark an OEM/contract-manufacturing boom in Mexico are being very optimistic. Keep in touch with your Chinese network, but start developing Mexican connections as well.