The most basic definition of IT outsourcing is the delegation of tasks to a third party for its completion with the objective of supporting your workflow, creating new software, or bringing expert skills that your company lacks. Simply put, it’s a great way to cut downtime, effort, and money when completing something that your company needs. These days, outsourcing is used by a very high percentage of companies in one form or shape.
Over the past 5 years, Mexico has become a hotbed for IT outsourcing and nearshoring. It’s seen an influx of companies – both large and small – establishing complete tech teams or hiring remote engineering talent in the region to support their internal operations.
Big tech names like Amazon, Facebook, Intel, Uber, and Linkedin have been steadily growing their already established presence there. US venture-backed startups are also noticing, and have started looking south to evaluate the location as an opportunity to build technical teams in their search for continued product or service growth.
The big question here is why?
Why have these companies turned to Mexico and why has that number increased constantly?
Let’s take a deep dive to figure it out.
Until just a couple of years ago, there was a feeling in the IT industry that outsourcing was only to be used by large companies or for very niche tech companies. What’s more, there was a growing skepticism of the true benefits of outsourcing because of the lack of transparency in how it worked and the horror stories of bad experiences.
So what changed?
Information! Information became available and instantaneous, bringing more transparency and easier access. This inadvertently led companies to reevaluate their previously held skepticism of outsourcing with new information and a fresh set of eyes. Both small and large companies that took this route saw an opportunity in outsourcing, and specifically a growing opportunity in Mexico.
In 2015, Mexico implemented a 10-year plan to increase its relevance in the STEM world. They pledged a $600 million dollar budget to the funding of programs, incentives, and landing pads to both attract foreign R&D facilities and to build its own.
Part of the plan had a clear directive: to produce qualified engineers. This forced governments and organizations to create initiatives that empowered universities to build elite engineering and tech talent programs. Nowadays those programs graduate north of 130,000 qualified engineers every year.
Mexico offers great opportunities for companies – especially US and Canadian – to deploy outsourcing strategies like nearshoring and hiring remote engineering talent to work dedicatedly. It boasts some competitive advantages over other outsourcing destinations.
As of now, the cost of living expenses is 329% more expensive in the United States than in Mexico. Rent itself almost 400% more in some cases. This means that software developers have different economic needs in both places, which results in a cost arbitrage where the same skilled engineer in the US might be 40-60% more expensive than one in Mexico.
Companies can stay close to their team, fly whenever needed to their nearshore offices or even bring their talent to their US headquarters. It allows for easier access whenever a presence is needed.
Most of Mexico can be reached in under 5 hours by plane. For the main tech hubs – which we’ll explore later – there are nonstop flights from US metropolitan cities.
For several years, businesses have switched to India and the Philippines for low-cost outsourcing. However, in recent years, Mexico has emerged as a viable option because of its closeness, especially those who’re seeking a more hands-on outsourcing relationship.
In our in-depth analysis of time zone for outsourcing in different countries, we concluded that time zone similarity is a big aspect when thinking long term, it allows to fix issues in real-time, constant collaboration, and the opportunity for collaborators to build relationships between themselves.
Mexico shares a maximum time-zone difference of about 2 hours across the whole country when comparing it to the US. This means that companies who outsource to Mexico can collaborate in real-time or nearly so.
Cultural affinity is the association of cultural closeness between two distinct cultures or ethnicities, and it may be the most underappreciated benefit. Given how influential the US is with Mexico, a large portion of the Mexican population can understand colloquialisms and non-verbal cues that might be missed by other cultures. This is something that unexpectedly strengthens their capability to produce the same or greater efficiency outcomes as their US counterparts.
As mentioned above, Mexico graduates over 130,000 engineers on a yearly basis and the rise of specialized training programs it also provides a place for them to develop their skills even further. The total available engineering today pool stands above 700,000.
You’ve probably heard of several big cities in Mexico and their role in the tech scene. The most renowned city is Guadalajara, sometimes known as the ‘Silicon Valley of Mexico’, but there are three other cities that are cataloged as ‘tech hubs’ and who boast great ecosystems to build tech or build tech teams.
IT businesses, big and small, see Mexico as the central hub for anything related to the engineering and IT niche. The Government of Guadalajara has been mindful of this and has undertaken several initiatives to draw talented IT professionals and industries to its city.
Guadalajara is home to 40% of Mexico’s IT industry and a well-educated community. There are 16 research institutes and 12 universities that produce more than 8,000 technical and engineering graduates per year in the state.
Not far from the US frontier, this community’s forgotten jewel is host to some cool cultural events and natural scenery. Monterrey, like Guadalajara, has great potential for technical growth and has taken time to spend, create, and promote outsourcing opportunities in the IT industry.
Monterrey is also home to Monterrey Institute of Technology and Higher Studies and has unique programs that bring together developers.
Tijuana’s popularity is owed to its sin-city-type party zone image, but it has transformed this picture into a more serious industrial hub. According to the Financial Times, the area has strategically exploited its prime position to take advantage of investment prospects and become a collaborator of the U.S. tech space.
The proximity to California’s Silicon Valley gives businesses a high degree of expertise at Mexican costs that makes for more opportunities and innovation. Places like the Bit Center, which holds about 65 businesses under one roof, continue to expand and see more companies entering.
Yucatan is the newest in the pack, and it’s been adapting itself to be more attractive for foreign companies by offering tax incentives, discounts on land or rent, as well as a solid base of elite engineers.
Its quality of life and relatively low cost of living have attracted a lot of engineers who’re working remotely and it is poised to continue to grow as we ease out of this medical emergency.
Clearly, outsourcing in Mexico has become a widely popular choice among companies that seek a better, cost-effective means of running their key operations. The country’s cities prove that the outsourcing scene is alive and thriving, and it’s not going anywhere any time soon. However, IT outsourcing in Mexico can be quite tricky, given the varying factors that might come along the way.
So if you’re interested in starting a conversation about how to tap into the outsourcing advantages of Mexico or Latin America, click here and our expert team can guide you in the right direction.