At one point, outsourcing was a business strategy limited to only massive operations that could benefit from handing off non-core functions.
But as technology has made it easier to personalize service offerings and more cost-effective even on a small scale, US-based companies of all sizes have started to leverage offshore talent.
Mexico, as the US’s neighbor, has become an ideal nearshoring solution, leading to a booming outsourcing industry. By 2028, the IT outsourcing market in Mexico alone is expected to reach $7.9 billion, with a CAGR of 12.3%.
However, like any strategic move, outsourcing to Mexico has advantages and drawbacks. Let’s examine why companies are lining up to outsource to talent there, the pros of doing so, and any challenges that may get in the way.
Why Are US Companies Outsourcing to Mexico?
More and more, companies are bringing their outsourcing efforts closer to home, known as nearshore outsourcing, and Mexico stands as a popular destination for outsourcing for several reasons:
Presence of tech hubs
Mexico has responded to the digital revolution by cultivating several cities as tech-savvy hubs. These cities are known for their developed digital infrastructure and talented pools of IT professionals and for fostering innovation, entrepreneurship, and the development of tech startups. Here are some of the cities considered the country’s leading tech hubs.
Also known as the Mexican Silicon Valley, Guadalajara is a hotspot for global tech companies and startups. It has a strong presence of highly skilled software engineers, and several tech giants such as IBM, Oracle, and Intel have development centers here.
Known as the industrial capital of Mexico, Monterrey has a growing tech ecosystem with excellent technical universities and R&D centers contributing to its tech-savvy workforce.
As the country’s capital and largest city, Mexico City is a major player in the tech scene. The city boasts a vibrant startup culture and is home to large international tech companies.
Tijuana is a fast-growing tech center, increasingly drawing attention from global tech companies for its tech talent, particularly in manufacturing and electronics.
As it sits directly on the US-Mexico border, the proximity benefits of nearshoring are elevated even further for outsourcing to Tijuana.
Ok, this one is a region rather than a city, but with government support for IT education and multiple tech parks, Yucatan is also emerging as a viable tech hub. The region’s main focus is software development and IT services, making it an attractive destination for tech outsourcing.
Capacity to provide specialized services
US businesses outsource to Mexico due to its ability to provide specialized services. It’s well known that Mexico’s IT industry is mature and capable of delivering competitive services in areas such as software development and IT support. But you can also find skilled support for outsourcing services such as:
- Human resources
- Call center services
- Property management services
Mexico’s workforce is highly skilled and educated, and the opportunities for finding the right individual professionals or specialized service providers for your needs are endless.
However, it is crucial to note that in 2021, a change in Mexican law targeting outsourcing reform put restrictions on outsourcing. The new regulations prohibit outsourcing core business activities. However, companies can still contract out specialized services if they are not part of their main economic activity.
While these changes aim to reduce tax evasion and protect Mexican workers’ rights, it has also complicated the landscape for businesses looking to outsource to Mexico. Companies must be aware of these changes and ensure their outsourcing activities comply with the new rules.
Pros of Outsourcing to Mexico
There are some significant advantages of outsourcing to Mexico for US businesses.
One of the biggest advantages of outsourcing to Mexico is the cost savings. Typically, the labor costs in Mexico are much cheaper than in the US because of the lower cost of living in Mexico.
Companies can reduce their operating costs significantly by outsourcing to Mexico, thereby increasing profitability.
For instance, in our experience, a mid-level software developer in Mexico would expect a salary between $50,000 and $70,000. While on the other hand, according to Glassdoor, that same position in the US averages over $90,000.
The Mexican population is young and highly educated. As noted earlier, tech hubs such as Guadalajara, Mexico City, Monterrey, Tijuana, and Yucatan provide a large pool of skilled professionals in IT and other sectors, which makes it easier for companies to find the talent they need.
For example, more than 130,000 software engineers graduate annually in Mexico from schools like the Monterrey Institute of Technology.
Proximity to the US
Mexico’s geographical location is a great advantage for US businesses. Being in the same or similar time zones facilitates real-time communication, and shorter travel distances make for easier collaboration and oversight of the outsourcing process.
Free trade agreements
Mexico participates in numerous trade agreements, most notably the United States-Mexico-Canada Agreement (USMCA), which replaced the North American Free Trade Agreement (NAFTA). These agreements facilitate business relations by reducing trade barriers and protecting intellectual property (IP) rights.
IP concerns can be a serious issue with outsourcing, especially in overseas countries that do not have tight IP laws. Knowing that their IP rights are protected in Mexico makes US companies feel safe about outsourcing their non-core business operations.
Cons of Outsourcing to Mexico
Like everything, there are, of course, some challenges to consider when outsourcing to Mexico. There is nothing that can’t be overcome with some planning, though. And, of course, if you choose to partner with an outsourcing partner like Near to find your Mexican talent, these issues will be further mitigated.
While Mexico’s rising education levels have led to more English speakers, there can still be a struggle with language barriers if you choose to work with talent that doesn’t have a high level of English proficiency.
Poor interpretation during communication can jeopardize tasks or lead to errors. Even superficial differences in style and tone can be misconstrued, leading to frustration and mistakes.
Businesses can provide workers with ongoing English language training and hire bilingual managers to bridge the language gap. Translation tools can also be used to aid communication.
Similarly, Mexico and the United States can slightly differ in various cultural aspects, including decision-making. Mexican leaders often emphasize consensus-building and consultation, leading to slower decision-making, which is misunderstood as inaction by their US counterparts.
In terms of communication style, Mexicans tend to be more indirect in their communication style than Americans. This can lead to misunderstandings if companies are unaware of cultural differences, leading to less-than-optimal business outcomes.
Cross-cultural training can equip staff with the knowledge and understanding to work effectively across cultures. Organizations can also prioritize establishing open communication channels to encourage discussion and resolution of any cultural misunderstandings that may arise.
As referenced above, changes were made to Mexican law in 2021 that restrict outsourcing, limiting it to specialized services outside the company’s main economic activity. Non-compliance may result in legal repercussions or damage to a company’s reputation.
Companies should engage local legal experts to ensure they fully understand the new legislation and are compliant. It is also vital to stay updated about changes in Mexican labor laws and regulations.
Best Roles To Outsource to Mexico
Mexico’s workforce is known for its high skill level and diverse range of expertise, making it an ideal outsourcing destination for various roles. Here are some of the best roles to outsource to Mexico due to the large pool of skilled talent available:
Mexico’s customer service sector is strong, thanks to the nation’s high proficiency in English and, obviously, Spanish. Not limited to customer support, Mexican candidates can fill more specialized roles that carry more weight.
Responsibilities typically include:
- Answering and managing customer inquiries over the phone or email
- Providing product service information and resolving product or service problems
- Processing orders and handling customer complaints
- Providing technical support to customers
Example Job titles: Customer Service Representative, Account Manager, Technical Support Specialist
Outsourcing data entry to Mexico can be cost-effective, allowing businesses to focus on core tasks. In our experience, Mexican data entry workers are typically very accurate and efficient. This role could include:
- Entering customer and account data into databases
- Compiling, verifying accuracy, and sorting information to prepare source data
- Reviewing data for deficiencies or errors and correcting any incompatibilities
- Maintaining data entry requirements by following data program techniques and procedures
Example Job titles: Data Entry Clerk, Data Operator, Data Analyst
Mexico is known for its robust software development outsourcing industry. This includes responsibilities like:
- Designing, coding, and testing software programs and applications
- Fixing bugs and improving the functionality of existing software
- Collaborating with other team members to design and launch new features
- Conducting thorough QA testing to ensure software is of the highest quality
Example Job titles: Software Developer, UX/UI Developer, Java Developer, Quality Assurance Tester
Accounting and bookkeeping
Mexico’s accounting industry is mature and known for its ability to handle bookkeeping duties while adhering to US GAAP or other international accounting standards. Outsourcing accounting can help businesses manage their accounts more efficiently and cost-effectively.
Responsibilities typically include:
- Recording financial transactions and posting debits and credits
- Preparing financial reports and statements
- Completing payroll functions and preparing tax returns
- Ensuring all financial reporting deadlines are met
Example Job titles: Accountant, Bookkeeper, Payroll Clerk, Tax Accountant
Outsourcing recruiting to Mexico can be strategic for companies looking to streamline their talent acquisition process.
These recruitment specialists can do things like:
- Posting job descriptions, sourcing potential candidates, and conducting initial screenings
- Coordinating and scheduling interviews
- Collaborating with hiring managers to understand company needs and accurately profile the role
- Managing the employer branding and candidate experience during the recruitment process.
Example Job titles: Recruiter, Talent Acquisition Specialist, HR Generalist
Outsourcing to Mexico offers numerous benefits, from cost savings through competitive labor costs to a labor market teeming with skilled professionals—and let’s not forget the proximity to the US. However, businesses must be mindful of the potential challenges, such as language barriers, cultural differences, and compliance regulations.
Remember, the success of your outsourcing experience largely relies on selecting roles that fit your budget and business needs. Whether it’s customer service, data entry, software development, accounting, bookkeeping, or recruiting, Mexico has a pool of experienced professionals ready to contribute to your success.
The right talent, with the right expertise, at the right price can make a massive difference in achieving your goals.
We recommend checking out our US vs. Latin America Salary Guide. It provides invaluable insights into the cost of talent in the US compared to Latin America (LatAm). It explains how the cost of living (and, therefore, salary expectations) varies throughout LatAm.
And when you are ready to explore the possibilities of hiring from Mexico, or any other LatAm country, don’t forget to book your free consultation call to discuss how Near can help you find the best talent. Our specialist knowledge of hiring in LatAm and our pre-vetted pool of more than 20k candidates means we can have you up and running with your new hire in just three weeks.