Contracts and Infrastructure: How Asian Business Culture is Redefining Mexico’s Industrial Market

Asian and Western companies manage their investments in markedly different ways. The disparity in tax rates between the two regions is significant and influences their negotiations. According to Pablo Culebro, Eastern companies generally have more complex negotiations and require a culturally sensitive approach, while Western companies, although also protocol-driven, have more direct and structured processes, particularly in legal and property matters.

"In Western companies, the differences are mainly evident in the size and nature of the businesses. Large European and American public corporations usually follow strict processes and negotiate through lawyers, which can extend the negotiations. In contrast, smaller companies, especially European ones, prefer to buy properties rather than lease them to have greater control over their investment, while Americans are more accustomed to leasing contracts, reflecting a more pragmatic approach to asset management," Pablo Culebro explained.

In contrast, for Asians—mainly Koreans, Chinese, and Taiwanese—cost is a crucial factor. As an example, the specialist in acquisitions and asset management pointed out that profit margins in electronics manufacturing are typically in the single digits, forcing these companies to operate with minimal margins and seek the lowest possible costs. As a result, “price is a decisive element in their negotiations.”

Additionally, this situation is influenced by the culture of government support that some Chinese companies receive in their home country, allowing them to maintain low operating costs. However, Pablo Culebro clarified that "producing in China is not the same as producing in Mexico, where labor costs and government support differ, which may increase operating costs. Still, this increase is not significant enough to impact the presence of Chinese companies in the North American market."

The pursuit of low costs influences the size of the industrial spaces companies from different countries occupy. After negotiations, the price per square meter of larger spaces tends to be proportionally lower than that of smaller ones, and according to SiiLA data, Asian companies typically occupy larger spaces than European, Latin American, and North American companies, with average sizes of 13.2, 12.1, 11.8, and 9.5 thousand square meters, respectively.

Beyond the differences, the RMSG executive stated that sustainability is an indispensable aspect for any company, regardless of the origin of tenants and investors.

"Contractually, a key emerging trend in the market is the growing demand for green leases, driven by large investors seeking to comply with sustainability guidelines. Tenants now expect facilities with eco-certifications and renewable energy options, such as solar panels or agreements to purchase clean energy, even in Class B and C properties," he explained.

Nearshoring is reshaping Mexico's industrial landscape. Asian companies play an increasingly important role due to the rising logistical challenges in the global supply chain and the trade tensions between the United States and China, which drive up operational costs.

SiiLA Market Analytics data shows that between the second quarter of 2023 and 2024, the industrial GLA occupied by Asian companies increased by 9% in Mexico. This growth was only surpassed by companies from Latin America and the Caribbean, whose occupancy grew by 11%. In contrast, European and American companies saw more moderate growth, with 6% and 4% increases, respectively.

It's important to note that the rate of expansion is directly related to each region's market share. Regions with a larger share, such as North America and Europe, experienced more moderate growth due to their already-established presence in the market. Meanwhile, regions with a smaller relative share, like Asia and Latin America, showed faster growth, capitalizing on their greater expansion potential.

In this context, Pablo Culebro mentioned that the viability of projects depends and will continue to depend largely on the available infrastructure, especially regarding energy and water. Pablo Culebro emphasized that developers face significant challenges in these areas, using solutions like electrical substations and power generators to ensure operational continuity.

"In an environment where resources are becoming increasingly scarce, these measures are crucial to ensuring the long-term success of industrial investments in Mexico," he commented. "This context reinforces the importance of understanding the cultural and economic differences between Asian and Western investors. How each approaches these challenges can determine their success in the Mexican market," he explained.

In addition to general challenges, Asian companies looking to enter Mexico face specific obstacles, particularly regarding their unfamiliarity with the Western financial system and the difficulties in enforcing contract guarantees, which become significant barriers.

"Eastern companies, especially Chinese ones, face particular challenges regarding guarantees. In countries like China, enforcing legal guarantees is difficult due to a system where the application of the legal framework is not as clear and straightforward as in the United States or Europe. For this reason, property owners often require letters of credit or additional deposits to ensure that contract terms are respected."

Moreover, Pablo Culebro noted that it is common for contracts to include clauses that require property owners to manage maintenance to ensure the property remains in good condition, as many Asian companies do not usually perform adequate maintenance.

Staying informed is crucial in an environment where cultural and economic differences between Asian and Western businesspeople not only shape negotiation and property management strategies in Mexico but also determine how operational and contractual challenges are addressed. To learn more about the performance and development of Mexico's industrial real estate market, explore SiiLA REsource or contact us at contacto@siila.com.mx.