What has just happened?
The e-commerce sector in Mexico represents a huge investment opportunity for domestic and international firms. Currently, online shopping represents 2% of the country’s $203 billion in annual retail sales. [1] COVID- 19 has accelerated the growth of e-commerce as Walmart de Mexico, the largest retailer in Mexico, [2] e-commerce sales grew 68% in a single quarter. [3]
What does this mean?
Walmart de Mexico has responded to this surge by opening a $27 million distribution centre in Tepotzotlán. With the aim of strengthening its logistical network across Mexico and creating employment for 350 people. [4] There are plans in the pipework for a further 3 fulfillment centres and 2 distribution centres across Mexico to cope with the predicted exponential growth of Mexican e-commerce.
However, e-commerce growth in Mexico has also attracted the interest of Amazon, as they look to expand their presence within South and Central America. From February to July, monthly traffic to the company's Mexican site (Amazon.com.mx) increased by 36%, from 38 million to 52 million visitors.[5]
It is important to note two key cultural obstacles that the expansion of the e-commerce sector will face, especially as more foreign companies are looking to expand their presence in Mexico.
Firstly, Mexican consumers prefer to buy from sites with a Mexican domain. This has led to Amazon heavily investing in its Amazon.mx website in order to reach the consumers who are weary of purchasing online from foreign websites.
Furthermore, Mexico is far from a cash-less society. A large percentage of Mexicans still do not have bank accounts or credit cards. [6] Thus, accepting cash is necessary to achieve e-commerce success.
This has led to a growth of convenience-store-payment methods such as Linio and MercadoLibre offer prepaid options for cash buyers. The expansion of retailers like Linio will be vital in the growth of e-commerce in Mexico. As rural communities have higher cash usage, there will need to be establishments that enable them to use e-commerce platforms.
What is the legal impact?
The most dramatic impact is on employment. Amazon has recruited more than 175,000 workers to help build their presence in Mexico. [7] 54% of Mexican workers work within the informal economy for cash in handwork.[8] Therefore, the investment by Amazon would reduce the nation’s reliance on cash in hand work further developing the nation’s economy.
The Mexican government has also implemented steps in order to reduce any future reliance on foreign businesses and improve domestic employment. The tax reform 2020 includes a requirement that ‘ revenue from certain digital or e-commerce services provided to Mexican residents from foreign entities that do not have a permanent establishment in Mexico, will be subject to VAT’.[9] This measure looks to use the growth of e-commerce as a way of ensuring economic stability.
Furthermore, the growth of e-commerce questions the Mexican legal system as there is no specific legislation in Mexico that governs doing business over the internet. Currently, there is no system of IT law that results in courts having to interpret through using just general provisions of law (civil and commercial). As a caveat, there is a strong line of precedence and the inclusion of the Código de Comercio in the underpinning of all business operations in Mexico. [10] Although there is no specific legislation, there are enshrined guiding principles.
In addition, UNCITRAL (United Nations Commission for International Trade Law)[11] model Law was not fully adopted, and there are several important missing definitions, such as the use of electronic signatures. The Mexican legal system will need to expand and produce new legal principles in order to successfully protect consumers, businesses, and the economy as Mexican e-commerce expands.
Written by Megan Hornsby
This article has been made in conjunction with Baillie Gifford an International Asset Management firm that currently holds £262 billion in its funds.
The process of researching and producing this article gives an insight into the life of a graduate on the Baillie Gifford ‘Investment Research Scheme’. The scheme is open to any individual who has achieved a 2.1 in any degree discipline and has a curious mind when thinking on the future development of society. As a graduate who would spearhead research into new and emerging companies to add to the £262 billion asset management portfolio.
Through your own research, you would help promote 'actual investing' which isn't centered on the quarterly growth of a firm. Instead, their 10 to 15-year growth potential and their societal impact.
Check out their website and apply now!
Assessing Firms:
#Baker McKenzie Abogados, S.C. #Hogan Lovells #White & Case S.C. #DLA Piper #Holland & Knight #Jones Day
References:
[1] Societe General, ‘Mexico the Market’ (Societe General, September 2020) https://import-export.societegenerale.fr/en/country/mexico/ecommerce accessed on 10th October
[2] Noi Mahoney,‘Pandemic Rapidly Accelerating E-Commerce In Mexico’ (Freight Waves, 11 August 2020) <https://www.benzinga.com/news/20/08/17034083/pandemic-rapidly-accelerating-e-commerce-in-mexico> accessed on 10th October
[3] Daina Beth Solomon, ‘ Coronavirus demand boosts Walmart's Mexico unit quarterly profit’ (Reuters, 28 April 2020) <https://www.reuters.com/article/us-walmex-results-idUSKCN22A3AN> accessed on 10 October
[4]Yucatan Times, ‘ Walmart Mexico Opens e-Commerce Distribution Center’ ( Yucatan Times, 18 March 2020) https://www.theyucatantimes.com/2020/03/walmart-mexico-opens-e-commerce-distribution-center/ accessed on 10 October 2020
[5] Noi Mahoney,‘Pandemic Rapidly Accelerating E-Commerce In Mexico’ (Freight Waves, 11 August 2020) <https://www.benzinga.com/news/20/08/17034083/pandemic-rapidly-accelerating-e-commerce-in-mexico> accessed on 10th October
[6] Marcia Kaplan, ‘Mexico’s Ecommerce Matures’ (Practical Ecommerce, June 11 2020) https://www.practicalecommerce.com/mexicos-ecommerce-matures> accessed on 10 October
[7] Juan Felipe Guerrero C, ‘México: crecimiento de más del 500% en e-commerce debido al COVID-19’ (BlackSip) <https://content.blacksip.com/crecimiento-en-ecommerce-por-covid-19-en-mexico> accessed on 10th October
[8] Yucatan Times, ‘ Walmart Mexico Opens e-Commerce Distribution Center’ ( Yucatan Times, 18 March 2020) https://www.theyucatantimes.com/2020/03/walmart-mexico-opens-e-commerce-distribution-center/> accessed on 10 October 2020
[9] Vistra, ‘ Mexico: New tax on foreign-supplied digital services’ (21 Jan 2020) <https://ieglobal.vistra.com/knowledge/country-compliance-alerts/2020/1/mexico-new-tax-foreign-supplied-digital-services> accessed on 10th October
[10] Carlos J Diaz Sobrino and Valery Tapia, ‘Digital business in Mexico: overview’ ( Thomson Reuters, 1 March 2020) <https://uk.practicallaw.thomsonreuters.com/w-012-0309?transitionType=Default&contextData=(sc.Default)> accessed on 10 October 2020
[11] Becerril Coca, ‘Mexico: The Mexican "E-Commerce Law’ (Mondaq, 29 May 2000) <
https://www.mondaq.com/mexico/Information-Technology-and-Telecoms/8998/The-Mexican-E-Commerce-Law> accessed on 10 October 2020
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.