Whether supplementing personnel, providing new skills or reducing costs, outsourcing is now a time-tested concept. The explosion in outsourcing has led to challenges, however, particularly in countries that have gained the largest outsourcing market share. Nearshoring – sourcing services from a nearby lower-wage country – offers key advantages:
- As part of a multi-sourcing strategy, nearshoring helps diversify risk.
- Nearshoring can offer the same cost advantages of outsourcing with less hassle.
- The close proximity of personnel in a nearshore engagement enhances collaboration.
- No cap or date constraint on visas whereas H1B vivas are issued only in October.
The Trouble with Outsourcing to Distant Locales
While the success India, China, Russia and other nations have experienced has been positive for all involved, rapidly rising wages and high turnover have presented challenges for outsourcing customers. Wages have risen in popular outsourcing areas, particularly in India, where they have increased 16 to 18 percent annually in recent years. In the battle for experienced talent, turnover regularly exceeds 20 percent per year. In India, turnover has topped 25 percent annually. Constant personnel churn necessitates continual training, which taxes project continuity and escalates project costs. In addition, the time and cost of travel to faraway locales, plus the strain on productivity when working in a different time zone, is well documented.
What’s Different About Mexico
Nearshoring, specifically to Mexico, alleviates many of the challenges posed by outsourcing to other parts of the world.
Mexico’s many universities offer excellent computer science, engineering and other technical degrees: more than 60,000 four-year IT-program graduates join the workforce each year. With encouragement and incentives from the Mexican government, there are currently more students enrolled in full-time undergraduate engineering programs than in the United States. (Source: BusinessWeek) More than 10 percent of Mexican students are enrolled in a computer science or IT-related program. These graduating engineers earn roughly one-third what their U.S. counterparts earn – a boon for organizations nearshoring to Mexico.
Lower Total Project Cost
When comparing wages, Mexico is similar to or slightly more expensive than some low-cost countries. However, when all cost factors are considered – turnover, ease of communication, productivity, travel time, lack of visa quotas and cultural affinity – Mexico offers a lower total project cost, rendering any wage differential inconsequential.
Mexico’s proximity to the U.S. means work occurs in the same or nearly the same time zone. Working-hour compatibility facilitates communication, enabling the use of Agile and other rapid development processes. Meetings and calls can take place ad hoc, during regular business hours. No more phone calls in the middle of the night or on personal time. Travel is more convenient, affordable and comfortable, with more flights from the U.S. to Mexico than to any other country.
Mexico also shares more cultural traits with the U.S. than any other outsourcing hotbed. A common culture contributes to higher productivity and lower costs. The cultural affinity is partially based on the constant exchange of goods and services and the fact that many of Mexico’s IT professionals work for global or U.S. companies. As the language of computer science and other technical degrees, English is the norm among IT technical professionals.
NAFTA Simplifies Visas
Because of NAFTA, there are no caps on visas for Mexicans coming to the U.S. Applications for H1B visas can be submitted in April, but work cannot begin until October 1. Quotas from certain countries are usually filled in days. Engineers from Mexico can freely come and go to suit the needs of a project, not the whims of government bureaucracy.
The country’s power infrastructure is sound with solid electrical grids. Power outages, all too often a way of life in India, are rare in Mexico. Traffic jams and gridlock is limited outside of Mexico City. In recent years, the Mexican government has undertaken a telecommunications modernization initiative, investing in fiber optics and satellite links. Mexico now shares nearly the same communications advantages found in the United States.
Low Risk Profile
Mexico is politically and economically stable. It is currently the United States’ second-largest trading partner and enjoys trade agreements with Canada, the EU, Israel, Japan and various Latin American countries. While drug-related crime is a problem and generates frightening news headlines, it is isolated to limited locales.
Intellectual Property Protection
Mexico is part of the North American Free Trade Agreement (NAFTA), and affords far more intellectual property protection than any other country with relatively low labor rates. In addition, Mexican workers working at client sites for an extended period of time are not subject to the H1B visa cap.