The Pros and Cons of Expanding This Corporation into a Mexican Market

MBA 610 Final Project Part II, Milestone Two: Memorandum

Southern New Hampshire University

MBA 610 Business Law

N.P.

December 9, 2018

Memo Introduction

This memorandum will demonstrate the pros and cons of expanding this corporation into a Mexican market. It will also outline any legal and ethical effects of running this business in Mexico. There are many advantages and disadvantages of moving such a big company to a country like Mexico, as there would be with any other country as well. This memorandum will point out all of the critical areas that must be discussed with upper and lower management, so they can thoroughly analyze all aspects of this move before moving into the Mexican market. These different areas of discussion include pertinent aspects of U.S. Law that must be considered when running this business internationally, the legal implications of moving this business abroad to Mexico, the ethical implications involved in this business decision, and lastly, how other U.S. companies have managed to comply with U.S. laws when doing business in Mexico and how these companies have addressed potential compliance issues.

Pertinent Aspects of U.S. Law When Doing Business Internationally

There are so many pertinent aspects of U.S. law when doing business internationally, such as in a location like Mexico. There is a considerable number of tax and employment laws that need to be reviewed to make sure everyone is on the page when moving to a new location.

For human rights, The Alien Tort Claims Act (ATCA) of 1789 are a group of laws that are put into place to protect certain human rights under both the U.S. and the international systems. This act “grants jurisdiction to US Federal Courts over ‘any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States’” (Global Policy Forum, n.d., para. 1). Any human right (slavery, war crimes, torture, forced labor, etc) that may be affected by a company or their business operations makes that company completely liable.

The U.S. Foreign Corrupt Practices Act (FCPA) is one that was originally enacted to it unlawful for people to make payments to “foreign government officials to assist in obtaining or retaining business” (Foreign Corrupt Practices Act, 2017, para. 1). This act is meant to prohibit bribery of foreign officials. There are certain provisions that must be accounted for, which the FCPA requires of the companies “whose securities are listed in the US” (para. 4).

Another thing that needs to be considered is the Office of Foreign Assets Control (OFAC), which is of the U.S. Department of the Treasury which enforces “economic and trade sanctions based on sanctions based on the US foreign policy and national security goals against targeted foreign countries” (US Department of the Treasury, n.d., para. 1). The countries that the US cannot conduct business with include Burma, Cuba, Iran, Liberia, North Korea, Syria, and Sudan. The OFAC has the emergency powers/authority (granted by specific legislations) to freeze the assets of companies if any of the listed provisions/rules/regulations are violated.

One other law in particular that should be discussed is the North American Foreign Trade Agreement (NAFTA). NAFTA is an agreement, not a law, but it still shows the different exchanges between the U.S. and Mexico, as well as highlights the different work and protected innovation laws and necessities for the U.S. and Mexico. The U.S. Customs Laws should be considered, as well, as it speaks upon allowing the U.S. to bring products into the U.S. from Mexico and also shows the requirements for different representatives who travel between the U.S. and Mexico for employment.

Some businesses are deemed legal in Mexico, specifically for financial reporting, which allows us to know that our practices will be respected by the U.S. IRS/Tax laws when it comes to reporting finances and exchanging cash from the U.S. side of this business onto the Mexican side. We should also consider the GAAP requirements when reporting any kind of business.

Legal Implications of Moving Business to Mexico

There are many legal implications that must be considered before moving a company into international territory, specifically Mexico. They have different laws that might be advantageous or disadvantageous to a company coming from the U.S. The laws and rights to practice are protected by the Foreign Corruption Practices Act. This act has helped U.S. companies in the past, such as in the case of MetalClad Corporation v. The United Mexican States in 2000, where the court ruled against Mexico and held them liable for “harassment and delayed processing paperwork” when an U.S. based company had purchased land in Mexico.

Expanding into Mexico requires the paperwork from the U.S. to be properly documented if they want to be protected under all laws, so that the patents are still our own. In Mexico, there do not seem to be any “property rights” or patent protection. If proper paperwork is not filed, we do not have any protection under U.S. or Mexico laws. Although, Mexico has streamlined the processes to obtain permits, licensing, etc.

These, as well as other advantages and disadvantages are what makes this move very tricky. Some advantages of moving to Mexico include inexpensive labor costs, labor force continuously growing and being taught in the school systems, the distance between the U.S. and Mexico is much shorter than the distance to other countries (e.g. Japan), experience/history shows that there is a “large consumer market for sales and distribution of their products directly into Mexico” (Benefits of Moving Companies to Mexico, 2018, para. 4), there are 11 duty-free trade agreements, so it makes it that much easier to import/export products in and out of Mexico, and finally, the Mexican government passed what they call RIPPA (Reciprocal Promotions and Protection of Investments Act), which assures foreign companies that their patents and secrets will be protected against theft and false branding.

Some of the disadvantages in moving this company to Mexico include the fact that people going to Mexico from the U.S. are not allowed to stay for long periods of time due to Mexico’s Immigration. “Sales agents” are considered outsiders and only visitors even with a business in the country. If anything, they would need a visa to stay for a maximum duration of 6 months (Puzzanghera, J., 2016, para. 3). This could possibly relinquish control on the company. Another huge disadvantage of this move to Mexico is that there is a lot of violence. The latest statistics show that there were about 29,000 homicides in Mexico in 2017. This was record setting (Meixler, E. 2018, para. 1).

Ethical Implications of Moving Business to Mexico

Along with the legal side of moving the company to another country, there are also some ethical implications that are involved. Some of these ethical implications include that U.S. people invested in this move must be understanding that the laws and ethics in a local/national level will be much different internationally, especially in a country that is full of poverty, corruption, bribery, etc. This is a country that can run strongly on bribes, even in the legal aspects of daily life, which can take a toll on the progress of this company in Mexico. Employment standards are quite different in Mexico than in the U.S. such as pay levels, working conditions, working times, age requirements, etc. The company must keep in mind that Mexican culture plays a huge role in most Mexicans’ lives, as they have many intense holidays and follow the religion specifically. Holidays and

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