Nearshoring in Latin America Series: 4. Mexico
Nearshoring in Mexico is trending right now as a popular way to outsource your software development. Specifically, it is outsourcing within a similar time zone making meetings and communication better for the whole project. We’ve covered the advantages and downsides of offshoring for the software development industry in another article. This article will be focusing on nearshoring in Mexico. We compile as much data as we can to help you decide on the best choice for you and your business.
Nearshoring in Mexico
According to World Bank statistics, “Mexico’s information technology outsourcing industry has been growing at an annual rate of 10 to 15 percent, amounting to roughly US$ 46 billion in exports, and Mexico is now considered the third-largest exporter country worldwide of information technology services.” So as the trend to software outsourcing rises, Mexico is becoming a very solid nearshoring option.
- World’s 10th economy
- The United States 2nd trade partner just behind Canada
- The 4th country in the number of airports and 1st in daily flights to and from the United States
- Mexico enjoys the most extensive free trade agreements network worldwide
- Rank 4th in per-capita foreign direct investment received
- The 6th country in business efficiency
- 7th exporting economy
- Ranked 12th in lifestyle satisfaction
With a population of over 123 million in 2017, Mexico ranks as the 11th most populated country in the world. It is the most populous Spanish-speaking country. In a country where over one-third of the population is under 25 years old, and three million people are enrolled in university, the educated middle class is growing very quickly. Mexico reportedly graduates over 120,000 new engineers a year and the Mexican government is working hard to create tech jobs locally, through programs like Reto Zapopan, to keep that talent local.
With the overwhelming victory of Andres Manuel Lopez Obrador (AMLO) on July 1, 2018, there are some concerns with how this will influence the private sector. While he has recently held a referendum and canceled the plans to build a new international airport in Mexico City, he seems to want to abide by the newly structured USMCA agreement. At least for now. While he is pro-public sector investment, it is hard to forecast how this will affect investment and private sector business growth. At this point, the economy seems to be as strong as ever, with many reasons to be optimistic about the future.
Mexico is the sole OECD country where 15-29 year-olds are expected to spend more time in employment than in education. With a strong base in public education, Mexico is now developing private secondary and tertiary options for continuing education. With Canada recently entering into an agreement with Mexico to remove the Visa requirements for students studying abroad, students are increasingly looking for technical training options outside of Mexico
The Advantage of Nearshoring in Mexico
Close. Mexico uses the same time zones as the United States, and many locations switch to daylight savings time and back on the same dates as their neighbors across the border. That means people and businesses in Mexico generally have the same work days as the U.S., and adjustments to allow for calls and meetings across time zones are easy. With a large number of direct flights—often taking no more than an hour or two—from many U.S. locations to Mexican airports, the country is also within close reach for travelers, easier and less expensive to get to than most of the offshore countries. Much like business travelers up and down the U.S. east and west coasts, many professionals crossing the border in either direction arrange their flights as day trips, without overnight stays. Business hubs such as Guadalajara or Mexico City are also well-connected to freeway systems.
Clued in. Don’t forget the cultural closeness. In the border states and beyond, many Mexicans watch U.S. television, root for U.S. bands and sports teams, shop with U.S. companies, connect with their friends on the same social media, and have similar political and cultural perspectives. Language barriers practically do not exist. Among business people and in the IT industry, English proficiency is generally at a professional level, although many are bilingual. Professional English competence is a graduation prerequisite in many universities and technical degree programs. Familiarity with U.S. business culture also entails a customer-focused mindset that emphasizes tangible results, responsive communications, flexibility, collaboration, creativity, and efficient time management; we often hear from clients that their experience with outsourcing companies in other regions did not rise anywhere close to the same quality.
Smart. The country’s more than 120 universities and technical schools graduate about 65,000 students with IT-related degrees every year. Because such leading educational institutions as Tec de Monterrey maintain campuses in many locations, great talent throughout the country can gain valuable, in-demand skills. Software developers join in many noncompetitive forums where they learn from each other and pursue their innovative ideas, often resulting in solutions or start-up companies with large potential. Tiempo Development is highly supportive of these efforts in the cities where we have our development centers—Guadalajara, Hermosillo, and Monterrey.
Agile software development and agile strategies are well known and widely preferred among Mexican developers. Events such as Agile Open advance the art and help developers become more effective in contributing within agile development environments.
Supported. At the federal and state levels, Mexican government provides financing and resources to advance the IT industry, strengthen nearshoring, and grow business with U.S. companies. The five most important, countrywide initiatives include these five:
- MexicoIT introduces companies to Mexico through outreach and events, educates regarding the advantages of nearshore outsourcing and IT investment in Mexico, and helps U.S. and Mexican businesses connect.
- MexicoFIRST aims to grow Mexico’s highly educated and competitive IT talent pool.
- ProMéxico fosters investments that advance technological innovation and R&D in the country.
- CONACYT supports R&D and technology infrastructure investments and IT innovation projects.
- PROSOFT provides financial stimuli to investing in and developing IT projects in Mexico.
Disadvantages of Nearshoring in Mexico
Regulations: It is often the case that nearshoring to Mexico will involve a partnership with a shelter company who handles compliance issues. However, some companies may be tempted by the nearness of an operation on the Mexican border to go it alone. Mexican regulations can be tricky if an experienced shelter company is not consulted.
Today, lean companies that stay abreast with current strategies are following a new trend – nearshoring to Mexico. Nearshoring is the strategy of partnering with a nearby country for the benefits of outsourcing along with the benefits of keeping business at home due to the proximity of the nearshore partner. But there’s more to it than this. Over the past decade, Mexico has made significant strides toward becoming a diversified economy with a deep skill base that offers more than just low-cost labor. Infrastructure costs—such as electricity, water and sewer, and transportation—are generally within 10 percent of U.S. costs. And the country has invested in its manufacturing infrastructure and labor pool to evolve into a more versatile producer of high-value goods, as well as commodity products.
Forrester Research summarizes it the best: “Companies interested in the cost and quality benefits of offshore labor, but which require a closer, less risky solution should strongly consider Mexico as an important nearshore option. Projects with intensive collaboration requirements, internal domain expertise requirements or a medium to high degree of end-user participation are often more suited to nearshore outsourcing models since travel between vendor and client is easy and time zones permit real-time collaboration.”