Small Foreign Owned Business Baja/ RAPTURE OF BAJA

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Can rupture net worth

Small “mom & pop” foreign owned businesses in Baja are often a result of the phenomenon I call – RAPTURE OF BAJA. The same phenomenon that drives the foreigner to purchase Baja real estate without due diligence. As the Stevie Wonder song goes “Wouldn’t it be lovely?” . To answer Stevie’s question – yeah it can be lovely, so long as you don’t bet the farm. One of the biggest traps for a would be Baja entrepreneur is the “I’m sick of it in the U.S.” syndrome. Somehow “kick back Mexico” will be the answer to a saner and happier life. So anxious and so at the affect of their illusions that they quit a well paying job or dump a profitable U.S. business and move to Baja to start “a new life”. The majority speak almost no Spanish, and will often state: “I understand a lot but don’t speak it very well”. When they say that I know they understand enough to get them in trouble; thinking they comprehend what is being said but really don’t.

Mexican BusinessThe enraptured know less about the Mexican business system than they do Spanish and typically set up shop without a marketing study or business plan. Remarkably, hundreds of otherwise intelligent people do this every year. Predictably, many lose their nest egg and disillusioned with Mexico return to the U.S. to “start all over again” . “Rapture of Baja” or rapture of any foreign populated area of Mexico is the cause for the behavior described as “leaving your brains at the border”. The extent of this phenomenon never ceases to amaze foreign investment professionals who daily witness the economic disasters that result from poorly constructed deals and illegal contracts.

The highest mortality rate I see among small foreign owned businesses is the same high failure sectors in the U.S.: restaurants, taverns and retail sales. Add to these tourism, including: real estate development, vacation home rental and sales.

The highest probability for success I see among small businesses in Mexico are in the export sector; the manufacture or purchase of a product, typically for exportation to the United States. Most of these entrepreneurs come to Mexico to manufacture or purchase a product they presently manufacture or purchase for resale in the States. The goal is not to develop a market but rather to enhance profitability from an existing customer base by exploiting Mexico’s lower production costs.

In contrast, the small retail, service or tourist business is usually an untested “start up” with an entrepreneur whose desire for change leads him to an endeavor in which he has little or no previous experience. Add the surprises and “excitement” that a foreign business culture can provide and the “Escape from Gringolandia” turns into a financial and sometimes legal nightmare.

Business CapitalThe primary cause for business failure in Mexico is the same for unsuccessful ventures worldwide – lack of sufficient capital. Here again the experienced manufacturer or exporter is typically well prepared to estimate start up capital and investigate the unknown variables, including transportation costs and export tariffs. The new retailer or service provider usually underestimates start up costs, the seasonal nature of revenue flows and the ramp up time necessary before adequate cash flow can support the business.

I personally like the exporting business in which the exporter acts as the intermediary between producer and customer. Unrestricted by a fixed manufacturing plant, the trader does not require a large capital investment nor is he locked into a given market. Aside from not being capital intensive and the freedom to shift with market trends the trader in goods is not enslaved by the demands of managing a manufacturing or retail operation.

If there is a product need in the U.S., Mexico can probably satisfy it. Once you have identified the product you want you can determine the resouces by contacting the following government agencies found in all major cities and towns: CANACINTRA (manufacturing chambers of commerce), Desarollo Economico (Economic Development Departments, state/fed.), and Bancomext (the Exterior Bank of Mexico). However, some products are made by artisans and are not listed in directories. In these instances you must identify regions of Mexico in which artisans specialize in the use of specific materials and processes, For example: Leon Guanajuato for leather, Guadalajara, Jaslisco for glass, Sinaloa and Baja California for wood furniture and baskets from indigenous groups throughout Mexico depending upon the type of basket. The fun of this business is shopping for what you want and then test marketing it in the states.

Product QualityThe biggest problem that faces exporters is product quality and meeting production deadlines. When resourcing your providers you must protect yourself from a sincere sounding supplier who will eventually miss important deadlines, provide shoddy product or both. The way to prevent this problem is to ask for references from international customers and not local references that are likely friends of the producer. If this is his first experience with a foreign exporter, “sit on” the supplier. Go daily to the factory or workshop as your goods are being produced and monitor production quality and quantity. Many entrepreneurs who begin by buying product from producers eventually establish their own manufacturing operation in order to assure desired quality and satisfy production deadlines.

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