Rankings report: Mexico

Mexico finds itself transformed

Nearshoring and an entrepreneurial boom, coupled with the digitalisation of the economy, is transforming Mexico. It is experiencing huge growth in its economy and, through its strong trading partnership with the US, local firms are becoming international ones. Along with a crackdown on tax evasion by the government, these trends are driving a huge demand for accountancy services. Che Golden reports.

The accounting industry in Mexico has found itself transformed by technological advancements, regulatory shifts, and evolving business landscapes. Firms have noticed a surge in customer demand, particularly as businesses gravitate towards more comprehensive financial transparency. As companies, both large and small, become increasingly international, their need for sophisticated accounting practices that can navigate cross-border complexities has grown. Nearshoring, predominantly from US and Canadian companies, continues to grow as an industry and has made the Mexican peso one of the strongest performing currencies against the dollar. The skills shortage that stalks the accountancy profession worldwide, is the only thing stopping Mexican firms from revelling in the boom.

“We have seen an entrepreneurial boom in some areas of Mexico such as Monterrey, one of the principal hubs of business in Mexico,” said Hector Javier Garcia Martinez, CEO of Crowe Mexico. “Monterrey has seen a surge in startups, entrepreneurial ventures, and private equity funds eager to find their next unicorn. These budding businesses often lack in-house financial expertise and, as a result, turn to external accounting services. Their requirements range from basic bookkeeping to sophisticated financial strategy consultations. Customer demand in the accounting industry of Mexico reflects a nation in the middle of an economic evolution, global integration, and digital transformation.”

Hector Javier Garcia Martinez, CEO of Crowe Mexico

Tax reform has also driven a lot of demand.  “One of the most significant changes is the introduction of mandatory disclosure rules,” said Francisco Bracamonte, tax partner, Kreston BSG. “These rules require tax advisors to file declarations for tax planning arrangements that are considered aggressive. Non-compliance can result in penalties of up to USD 1 million. The demand for accounting services has steadily increased, surpassing the country's GDP growth rate of 3% for this year and this growth can be directly attributed to the continuous efforts of Mexican tax authorities to combat tax evasion.”

Mexico has been keen to modernise and has embraced the digitalisation of its economy. The adoption of technology has driven efficiency amongst Mexican firms, but has also intensified competition, according to Martinez. “With an array of digital tools at their disposal, we are all competing to offer cost-effective solutions, leading to a certain fee compression in the industry,” he said. “However, this fee pressure has pushed accounting firms to venture beyond traditional services, incorporating consultancy and advisory roles into their portfolios, adding value to their clientele and, in turn, justifying premium pricing.”

Francisco Bracamonte, Tax partner, Kreston BSG

The democratisation of technology also means that even smaller firms or newly established ones have access to state-of-the-art accounting and tax tools. This has levelled the playing field, leading to more competition among firms competing for the same client base. More options for clients invariably lead to fee negotiations and competitive pricing. A good example of this would be transfer pricing, where small, or boutique, firms are now competing with larger firms for the same clientele.

However, the digital age means firms now require a different kind of skill set when hiring accountant and there is a growing demand for professionals adept in technology, data analytics, and international standards. “The accounting profession, traditionally rooted in numbers and ledgers, now interfaces significantly with digital tools and platforms,” said Martinez. “As such, we are not just seeking individuals with proficiency in accounting principles but also those with a flair for technology. This includes familiarity with various accounting software, data analytics capabilities, and even basics of cybersecurity, given the sensitive nature of financial data.”

Cuauhtémoc Contreras, Partner at Zesati Contadores, an MGI Worldwide member firm

With accounting firms diversifying their services into consulting, advisory roles, and specialised sectors, there is also a demand for a workforce that is not solely grounded in accounting. For instance, an accountant with knowledge of environmental sustainability can be an asset for firms offering sustainability reporting services. As Mexican firms serve international clients or collaborate with foreign partners, there is a growing need for professionals who are not just technically proficient but also culturally astute. Understanding global business etiquettes, communication nuances, and even foreign regulatory landscapes can be advantageous. This creates a pretty long list of demands for recruits when the skills pool is shrinking.

Cuauhtémoc Contreras, partner at Zesati Contadores, an MGI Worldwide member firm, has found there is a sheer lack of people choosing to study accountancy. “It is difficult to find people who are interested in accounting,” he said. “Universities see a small demand to study for this career. Because of this, it’s not easy to hire people – then, once they are working, it’s difficult to keep them - this last point I could say is part of a generational issue.”

Jorge Villanueva, Audit partner, Mazars Mexico

In the last year, Martinez has seen more demand for services related to digital accounting because a lot of businesses are moving online. Tax advisory services have also seen a boost, probably because of changes in tax rules. And with more businesses caring about being environmentally friendly, sustainability reporting is getting popular too. Contreras has seen growth in internal control and governance and over the next 12 months will be developing services focused on governance, transfer pricing and services to combat money laundering. Bracamonte anticipates an increase in government regulations and auditing controls. Clients are also placing greater emphasis on the quality of services, including their alignment with ESG principles.

SMEs are now paying more attention to good governance, according to Martinez, as they are realising that it is not just big companies that need to have good practices. However, while there has been a boom in SME demand for accountancy services, they often put pressure on fees by prioritising price over quality. “They still see accounting services as something that has to be dealt with but do not necessarily think of it as something strategic for their businesses,” said Jorge Villanueva, audit partner at Mazars Mexico.

Salvador Hurtado, Partner at Zepeda y Asociados Consultores, a PrimeGlobal member firm

While there has been no significant regulatory development in Mexico over the last 12 months, some ongoing impact from previous changes has affected the business environment in 2023.  The adoption of some digitalisation has not been without its problems. For instance, as of April 2023, a new version of electronic invoicing (CFDI) was released; this version requires taxpayers to confirm all their information registered with tax authorities. Inconsistency between the tax authority’s database and the information provided resulted in an impossibility of issuing the CFDI, and in consequence the non-deduction of the expense. “This was applicable to electronic payroll receipts as well, so all employees were required to confirm their information causing an overload of requests,” said Salvador Hurtado, partner at Zepeda y Asociados Consultores, a PrimeGlobal member firm. “A new electronic bill of landing to be added to CFDI intended to identify all products transported in Mexico has been postponed until January 1st 2024. 2023 marked the beginning of a change to pension plans, whereby the amount of the premium paid by employers will increase each year.”

Francisco E Quintanilla, partner at QGA Contadores Publicos SC, a BKR International member firm, expects there to be no regulatory reform until after the elections. “As this is the last year for the president, the government will be exercising caution and not bringing in any major changes in tax laws,” he said. “We might not see any significant changes until 2025.”

Francisco E Quintanilla, Partner, QGA Contadores Publicos SC, a BKR International member firm

Nearshoring was an unexpected area of growth in last year’s report and it continues to spur significant growth in BPO (Business Process Outsourcing) services, according to Andrés Osorio Porta, senior accountant for MGI Bargalló, Cardoso y Asociados. “Many companies now prefer to concentrate solely on their core activities and are outsourcing administrative, financial, and compliance tasks to accounting firms,” he said.

Most of the nearshoring in Mexico comes from US companies and the US and Canada are now such strong trading partners with Mexico that the Mexican government did not seek to join BRICS this year. President Andres Manuel Lopez Obrador said that his administration’s priority is building on the July 2020 US-Mexico-Canada Agreement, the successor to the North American Free Trade Agreement (NAFTA). Nearly 85 % of Mexican exports go to the US and Canada and in May, Mexico became the No.1 trading partner of the US.

Andrés Osorio Porta, Senior accountant, MGI Bargalló, Cardoso y Asociados

As US companies increasingly look to Mexico to bolster their supply and value chains, it is likely to boost Mexico's GDP growth as investment surges, according to Morgan Stanley. According to a report released by the firm in June 2023, nearshoring has the potential to boost the growth of Mexican manufacturing exports to the US, from USD 455 billion today to an estimated USD 609 billion in the next five years. Meanwhile, new investment driven by nearshoring could reach about USD 46 billion in the next five years, helping boost Mexico’s annual GDP growth to around 3% in 2025 to 2027, from an estimated 1.9% in 2022.  Strong capital investment flows into Mexico from the United States and China have bolstered the Mexican peso, making it among the best-performing currencies in 2023.

The upcoming elections seem to be the only other cloud on the horizon, along with staff shortages.  “With the upcoming presidential and various gubernatorial elections next year, discussing economic expectations or significant developments becomes somewhat challenging,” said Porta. “It can be anticipated that there will be stricter fiscal reviews and increased rigidity in labour legislation, as the government will need to raise funds for the election campaigns.

Main Image: La Gran Plaza, Monterrey, Mexico. Credit: eskystudio