22 Apr 2022 Communication, Relationship Building, and Negotiation Strategies in Mexican Manufacturing
When a firm elects Mexico as a new manufacturing frontier, a myriad of cultural phenomena come into play that differs greatly from the United States, Asia and even other Latin American nations. When speaking with prospective clients at MSSA (The Mexico Strategic Sourcing Alliance, LLC), the primary questions concerning our proposals nearly always have to do with the timeline for developing such a supply chain out of Mexico.
The startup phase of a manufacturing project in Mexico can often take at least double the time that would be required to begin production in Asia. Many of the reasons behind this are cultural and unique to Mexico. Communication styles, the value of relationships and the negotiation process are three key components of Mexico’s business culture that must be taken into consideration by American firms when electing to manufacture in Latin America’s second-largest market.
Communication in Mexican Business
There is a stereotype about Mexicans and Latins in general that they are “dishonest” or “lie a lot,” “won’t tell you what they are thinking,” or “just can’t say no.” Before jumping to such resounding conclusions, foreign business leaders should look at Mexico from a more analytical cultural lens.
It is indeed true that communication in Mexico is traditionally far more indirect when compared to Anglo-Saxon, Nordic and Germanic communication styles. There are historic and cultural phenomena that cause Mexicans to often speak with more pleasantries, avoid saying “no” to a client in a direct manner, and often speak in circles or “vueltas” when explaining things. Anglo-Saxon, Germanic and Nordic cultures are extremely direct in their thinking which is reflected in communication styles. Latin American cultures, on the other hand, have far more circular mindsets concerning everyday life, which is evident in daily communication practices.
In the United States, we are focused on getting from A to B in the shortest amount of time in a figurative sense in everyday life. Every task of every day is about efficiency, be it how fast to prepare a meal, or the fastest route to the store to buy ingredients for such a meal. Mexican culture does not value time and efficiency in the same way as the United States does, and therefore communication can be more drawn out, less direct and with more small talk concerning business dealings.
Lack of ability to say “no” or disclose bad news is related to Mexicans’ cultural value of direct conflict aversion and is more about not offending someone as opposed to being dishonest. Additionally, as relationships are valued more (as I will later discuss), the urgency of “getting down to business” through a quick, linear form of communication as would be the case in New York or Los Angeles is not seen as a priority in many parts of Mexico.
Indirect Communication Styles and Meeting Deliverables in Mexican Manufacturing
A common complaint amongst Westerners who have attempted to or who have manufactured in Mexico has to do with deliverables. Americans, Canadians and Europeans often complain that “They kept saying that the order would be ready tomorrow, or the next week or a few days after the due date. Once we found out that there was an overall problem with their supply chain or their manufacturing operation, it was a giant mess.”
This has certainly happened in Mexico as Mexicans have the reputation of not wanting to give bad news to those whom they do business with. Although my research and personal experience with Mexican suppliers is that this is happening less often today than many would assume. Serious factories in Mexico’s northern industrial powerhouses such as Monterrey, Tijuana and Ciudad Juárez have come to adopt a far more Americanized way of doing business with regards to contracts, timelines and most of all transparency when doing business with their northern counterparts.
I am on calls frequently with Mexican suppliers as they directly explain to American clients (in English) that current issues in the global supply chain, raw material procurement and commodity prices will delay shipments and or create price increases. It is ridiculous to think that a serious Mexican contract manufacturer, with US-educated owners and engineers, in 2022 would simply lie and not be transparent to VPs of a publicly traded US company when discussing a contract, deliverables, and updating lead times via conference call or email.
Nevertheless, there are Mexican contract manufacturers who are competitive and responsible and yet still have employees who chose to communicate in the “old Mexican way,” thus causing serious challenges for American firms who need direct, linear communication to maximize their Mexican manufacturing endeavor. Yet the anecdotal catastrophes from many Westerners with poor experiences in Mexico can be prevented by taking precautionary steps.
First and foremost, it is well-advised for foreign importers to develop a direct relationship with the firm’s owner to get more direct communication. Never depend on managers and directors. Developing relationships with owners is of course solid business practice not just in Mexico, but globally.
Additionally, a more hands-on, maternalistic approach to working with a Mexican supplier can guarantee better communication and better results. More constant communication and release of information are often crucial in preventing cross-cultural communication meltdowns. Assume your supplier does not have or know what you would like to assume they have or know and verify this! Consistently following up with Mexican suppliers with the attitude of “Do you have everything you need?” and “When will I get a quote?” or “Is everything on time?” “Has production begun?” is a more failsafe way of communicating. A simple “set it and forget it” approach to setting up manufacturing is a recipe for disaster.
I have been in countless situations where a Mexican supplier missed a timeline and did not communicate it directly to a client justified his or her shortcoming by saying “I was waiting for x, y, or z piece of information.” The more proactive a Western manager is in communication with a Mexican supplier, the lower his chances are of experiencing a cultural mishap. Such constant communication with employees and owners of Mexican firms is essential in advancing another time-consuming yet essential requirement in Mexican manufacturing: establishing a relationship.
Establishing a Relationship
We cannot overemphasize the power and necessity of building a relationship with Mexican suppliers when manufacturing in Mexico. When discussing that Mexicans are often less direct and linear in their thinking and communication, I mentioned that this has in part to do with the power of a relationship. Initial meetings and calls in Mexico are often more “meet and greet” endeavors in which Mexican suppliers explain their firms’ basic capacities while listening to the needs of foreign importers.
In the minds of most Mexican business owners, this is more about establishing the foundation of a relationship and less about discussing manufacturing capacity, technical drawings and annual volumes. While relationships matter in Western countries, they are far more crucial in Latin America. As one Canadian businessman who lived in Mexico City for 15 years put it “If Mexicans don’t know you and like you, they won’t do business with you.” It is therefore essential for foreign importers to make at least one and in some cases multiple trips to Mexico when establishing contract manufacturing operations.
A large part of such visits indeed has to do with accessing capacity and quality and negotiating contracts. Additionally, such meetings are about establishing and cultivating a relationship. Expect to be invited to one or multiple meals by Mexican factory owners. Expect to engage in discussions about topics such as sports, family and even politics. This is the effort by many Mexican businesspeople to engage with and get to know clients on a personal basis. In the cases of our clients, final pricing concessions often come during such visits and even at dinners.
Negotiation Strategies and Protocol in Mexican Manufacturing
Prolonged negotiations are frequently the most acute reason for the extended timeline in the startup phase of Mexican manufacturing. As a consulting firm dedicated to the re-shoring of supply chains from Asia to Mexico, it is difficult for us to overemphasize the “sticker shock” of initial quotes and multiple bidding rounds required to achieve optimal pricing from Mexican suppliers.
Initial bids from Mexican suppliers nearly always come back high. Not 15-20 percent or even 30 percent above target price or final pricing, but exceedingly high. It is not uncommon to see initial bids from Mexican suppliers come back 200-300 percent above what they eventually accept as final pricing. A great deal of this is simply cultural as this is the way the bidding game is played in Mexico.
Additionally, Mexican firms are often overzealous with quoting and see companies north of the border as cash cows and generally have higher margins than Western firms. A client in the Midwest who deals with imported farm machinery from all over the world recently told me that after asking for cost breakdowns of quotes, Mexican factories generally have the highest margins of any country. Mexican firms are accustomed to selling into an uncompetitive national market and often have no idea what their competition is quoting for the same commodity or product. Foreign companies mustn’t get a sticker shock and run away from such initial bids.
After receiving initial bids from multiple Mexican suppliers, MSSA consultants employ a process of pitting them against each other to achieve optimal pricing. This process can often take multiple in-person visits from our consultants and clients to multiple suppliers to achieve optimal final pricing. The process can also take several months. As Mexico is a relationship-based culture, such in-person meetings are often unavoidable in route to receiving final concessions. If you simply want the best price on a first or second quote, then Mexico may not be your ideal country for doing business. If you are willing to go through the process, the long-term gains of manufacturing in Mexico can outweigh the initial sacrifice and investment.
Embarking upon a manufacturing endeavor in Mexico cannot be done with a completely Westernized strategic approach. Communication practices are changing among younger, well-educated city-dwelling Mexicans as globalization demands a more Westernized business protocol for Mexico to compete. Cross-cultural communication differences must be navigated with proactiveness, attention to detail and empathy for the ways things can often be expressed in Mexico. Western directness can often be seen as rude in the eyes of certain Mexican employees.
Many such cultural differences in communication and other aspects of cross-border business can be resolved by establishing and cultivating a solid relationship with a Mexican supplier. A direct relationship with the owner of a factory is essential. This will ensure rock bottom, competitive pricing when it is time to sign contracts and begin production. Mexico is a nation with many cultural idiosyncrasies that are illogical in the eyes of Westerners. A greater understanding and navigation of such cultural phenomena can ensure a solid supply chain transition to Mexico.
MSSA (The Mexico Strategic Sourcing Alliance, LLC) partners and associates have decades of combined experience in navigating the Mexican manufacturing landscape and business culture. Many of our top clients have attempted to source in Mexico on their own but with poor to limited results. Our process of Mexican supply chain development accounts for the Mexican cultural practices and is tailored to avoid cross-cultural misunderstandings between our clients and Mexican suppliers in communication, relationship building, and price negotiation. In nearly all cases, we have direct, established relationships with Mexican factory owners, thus saving our clients time and money in attempting to navigate their way to the top of a Mexican firm on their own. These factory owners are already aware of the communication and globally competitive pricing required for the US export market.
Having a team of consultants on the ground with a comprehensive understanding of the Mexican manufacturing market is an investment that can pay dividends for years via healthy, seamless contract manufacturing programs in Mexico.