Article

Mexico offers intriguing opportunities for American brands looking for new markets

Nov. 5, 2019

While the U.S. economy is still strong – with low unemployment, rising corporate profits, and low interest rates – at some point the boom will fade and retailers will struggle to sustain growth. Boom times are the perfect time for retailers to consider expanding into foreign consumer markets, especially in Mexico.

American companies have to pick foreign markets carefully. A few years ago, the trend was expanding to so-called BRICS countries, in particular Brazil, Russia, and South Africa. These non-emerging markets all offered opportunities for fast growth from both new money and the promise of government investments in infrastructure. Recent political and economic developments in those countries, however, including unstable currencies and official corruption, have caused retailers to rethink where and when to expand internationally. With the possible exception of India, none of the BRICS countries look very promising in the near future.

Tourism triggers market expansion

Enter Mexico. Over 17 million Mexican travelers visit the U.S. each year, second only to the number of Canadian visitors. Mexicans know and like American brands and when they travel they look for their favorites. This familiarity makes it easier for American retailers and manufacturers of consumer goods to expand into Mexican markets, because they don't have to allocate as many advertising dollars.

Although Mexico and the U.S. have had a complex relationship over the last two decades, trade agreements like NAFTA (to be replaced by the new USMCA) have intensified free trade and migration as well as the influence of each culture on the other. Latino traditions and food have become mainstream in the U.S. Because of media and tourism, Mexicans are more aware of American holidays, food, brands and entertainment. Any U.S. retailer should consider Mexico as their first choice of international expansion.

Why Mexico?

There are key macroeconomic indicators that make Mexico very enticing as an expansion site.

A growing middle class. Mexico was long a country of two economic tiers – the very wealthy and the very poor. The middle class, two-income family demographic was too small to be appealing to the typical U.S. retailer. Now, Mexico has an expanding and educated middle class comprising almost half the country. This middle class is looking for a good retail experience.

In the northern cities, Mexican shoppers are more aware of American brands. It is common to find shopper groups that take monthly bus trips from Mexico to southern Texas, California and Arizona to stock up on merchandise that is unavailable at home or that is perceived as better priced in the U.S.