Outsourcing to Mexico - Trends

While outsourcing software development to Mexico (or "nearshoring")has been around for over 30 years, it wasn't until recently that the Mexican government recognized it for a viable industry for building its economy. India proved it could be done but has recently recognized the limitations of outsourcing to India and is making significant investments in software development delivery centers in Mexico. AT Kearney has noted this shift in IT outsourcing to Mexico in one of their latest reports.

This article from silicon.com shares:

Mexican labour is cheaper than American labour. Newly minted Mexican engineers make around $1,200 per month, Flores said - about a third of what young engineers earn in the US. Intel has about 1,000 employees in Mexico, he added. Freescale also has development operations.

Technology also remains a popular subject with students in the country. Mexico has around 400,000 students studying IT-related subjects in universities and technical schools. Roughly 60,000 of them graduate from these programmes annually. The Monterrey Institute of Technology, which used Massachusetts Institute of Technology as its model, remains the country's premier technical university.

The Outsourcing Institute promotes Mexico stating that:

"There is a very large, educated, young population. There are plenty of people available for the work, including skilled technical people," says Raymond Duran, an account executive in the Juarez, Mexico, office of GECIS Americas, an outsourcing vendor that's part of General Electric Co.

As early as 2007, Indian companies began to see the need to shift some of its delivery business to Mexico. Some of those reasons are due to increased wages, increased turnover, decreased productivity, time zone issues, labor shortages, and a need to mitigate political risks.

Mexico, of course, is not necessarily the right outsourcing desitnation for all companies. Research by the McKinsey Global Institute (MGI) finds that "a dearth of IT vendors, a costly infrastructure, and a talent pool with limited suitability for multinational positions are among the factors preventing Mexico from realizing the considerable opportunity created by globalization.

This shouldn't stop the small and medium sized businesses from seeking outsourcing companies in Mexico. It simply means that Mexico is still not ready to handle the scale of business that India and China are able to provide. The benefits are still powerful.

Forrester Research recommends ... “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.”

Tata, EDS (now part of HP), Accenture, IBM, Infosys all have development centers in Mexico. These are great partners for the global corporations of significant size, but small and medium size businesses may prefer to work with local outsourcing companies such as Scio, Nearsoft, Softtek (which bought GE's development center), or Hildebrando.