Nearshore Software Outsourcing in Mexico: Everything You Need to Know

Nearshore services have experienced a surge in popularity over the last decade, with Mexico becoming a cornerstone of the region’s software development outsourcing sector.

As the eleventh-largest economy in the world and the second-largest in Latin America, Mexico is home to a vast pool of highly skilled software developers. The country boasts a similar time zone to the United States and is only a short flight away from Silicon Valley and the largest tech hubs in North America.

In fact, according to a recent study conducted by Gartner, Mexico ranks third for offshore staff augmentation and nearshore services, just behind India and the Philippines.

Let’s take a closer look at this popular nearshore software outsourcing destination.

Technological Advances & Investments

Currently, Mexico’s IT industry provides revenue of MX$760 million (US$38 million), thanks to substantial growth over the last few years.

Recent reports indicate a positive growth rate of more than 6% for 2021, which is higher than several other industries. With the government declaring it an essential service, Mexico’s IT sector has even managed to stay afloat during the COVID-19 pandemic, with the number of jobs actually increasing in 2020.

According to Select’s Technology & Business 3T2020 report, the industry’s growth is closely linked to segments like smartphones and cloud services, the latter of which plays a key role in the industry’s growth and will continue to do so throughout 2021.

Investments

Mexico is the third-largest IT exporter in the world, with more than US$21 billion in exports. Foreign investments and IT outsourcing have always been essential to the country’s economy, so they are welcomed by the government with open arms.

The United States and Mexico have a close relationship in terms of investment and trade, mainly due to the North American Free Trade Agreement (NAFTA) and more recently, the U.S.–Mexico–Canada Agreement (USMCA), signed in 2018, which includes a specific chapter on digital trade.

In addition, Mexico is a member of the G20, the Pacific Alliance, and the Organisation for Economic Cooperation and Development (OECD). In March 2018, Mexico also became the first Latin American nation to establish Fintech regulations, which were key to ensuring user protection and healthy competition among the different actors.

The country provides attractive incentives to companies interested in settling its territory, including:

• Not having to pay local or state income taxes on corporate earnings
• Special grants provided by the National Council of Science and Technology (CONACyT)—as long as specific conditions are met.
• Global commerce and free-trade agreements with several locations including the European Union, Norway, Switzerland, Israel, Colombia, Costa Rica, and Japan.

According to the World Bank’s 2020 Doing Business ranking, Mexico has one of the highest scores (8) in terms of transaction transparency, even scoring higher than the U.S. (7.4).

The country has heavily invested in infrastructure to promote IT outsourcing services and foreign investment. One of the most impactful results of this investment is the establishment of several IT clusters throughout the country, enabling local companies to collaborate and deliver software development, call centers, IT engineering services, and more on a domestic and international level.

In recent years, U.S. companies have been showing a growing interest in Mexico’s ability to leverage Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS), and Software-as-a-Service (SaaS).

Tech Hubs

Although Mexico City is the epicenter of the country’s software industry, with more than 160,000 developers, several other cities are gaining momentum. In Guadalajara, known as “Mexico’s Silicon Valley”, the IT workforce is made up of 100,000 employees, while Monterrey represents the country’s second-largest industrial center.

To successfully attract foreign investment and develop IT skills and products in the country, Mexico invested in more than 20 technological parks in Aguascalientes, Chihuahua, Coahuila, Mexico State, Guadalajara, Durango, and Jalisco, to name a few locations. These hubs work with local nearshore services companies, domestic providers, universities, and governments to promote different kinds of IT-related programs and projects.

Three parks have facilities comparable to those in the United States: Monterrey Technology Park, Apodaca Technology Park, and Guadalajara Software Center.

Co-Working Spaces and Accelerators

Entrepreneurship and IT outsourcing are very much alive in Mexico, so co-working spaces and accelerators have been thriving among startups and freelance professionals in recent years.

There are currently more than 70 coworking spaces in the country, and although more than half are in the capital, new spaces are continuously emerging in almost every state.

Mexico also has some of the best and most sought after accelerators in the region, with a wide variety of high-quality programs and different sorts of investments.

• TechStars: Each year the platform selects 500 companies in their early stages to undergo a three-month mentorship and receive US$120,000 in investments to get started. The accelerator has worked with over 2,300 companies to date.
• 500 Startups LatAm: Named the Most Active Venture Capital Fund in the World by Pitchbook in 2019, 500 Startups has invested more than US$10 million in over 170 startups, including companies like Apurate, Expansive, Pagaris, GravitiBonnus, Chipax, Reservaturno, and Shopeando.
• MassChallenge: Partnered with institutions such as Facebook Mexico, the International Development Bank (IDB), and Nestlé, this zero-equity accelerator has assisted more than 140 startups, including 2019 Mexico Diamond Winners, Abeja Reyna and Polybion, and 2019 Mexico Gold Winner, Facturedo. It provides mentorship, up to MX$2 million (US$100,000) in investment, and free co-working space, among other benefits.
• Startup Mexico: This accelerator provides several different programs related to financing and acceleration in Mexico, Costa Rica, and Brazil, including a Bootcamp and a pre-incubation program. Partnered with companies such as IBM, HubSpot, iZettle, and Amazon Web Services, Startup Mexico has helped launch several different companies, including Gromich Agroindustria, Aerogott, Kombea, and Isit.

Skills & Employment

Developing IT skills have been a focus of the Mexican government for several years, empowering young people from all over the country to pursue careers in STEM. These actions have led to a qualified workforce growing three times faster than in the U.S, an ideal situation for any outsourcing company looking to expand its operations.

When it comes to programming languages, the most commonly used in Mexico are PHP, Java, Microsoft .Net, Python, and Ruby, mainly for Android, IOS, and Windows operating systems.

In terms of the size of the talent pool, currently, there are approximately 500,000 IT professionals—a number that continues to rise each year. In fact, according to the World Economic Forum, between 2005 and 2012 the number of STEM graduates increased by almost 5%. Mexico is also expected to become one of the top 20 countries for post-secondary education by 2035.

As stated by a recent CBRE report, Mexico City has the second-highest availability of technological talent in Latin America, with more than 160,000 developers. The workforce is second only to Sao Paulo (Brazil), with 190,000.

In 2018, the job market for software development reached new levels, with Mexico City (8.8%), Guadalajara (7%), and Monterrey (10%), seeing the most significant growth rates—in 2016, those rates were as much as 4% lower in some cases, according to data collected by LinkedIn.‍

Local Universities with IT Degrees and Masters

Mexico has some of the best technical universities in the region, some of which are ranked top on international rankings such as QS and Times World University Ranking.

Every year, more than 120,000 students graduate in engineering, which amounts to almost 20% of all university graduates in the country—a remarkable statistic when considering Mexico’s potential for nearshore services.

Between 2006 and 2012, the country opened 120 specialist technology tuition-free universities and promoted engineering and science courses in more than 96 schools and colleges.

Currently, the three universities with the highest scores in international rankings in technology studies are:

National Autonomous University of Mexico (UNAM)

Located in Mexico City, UNAM placed 448th in the QS World University Rankings ranking for Best Universities for Engineering and 399th in the Best Global Universities of the year.

The university provides engineering degrees in the areas of Telecommunications, Computer Science, Mechanics, and Electrics and Electronics, as well as postgraduate studies in computer science theory, software and database engineering, artificial intelligence, computing networks and cybersecurity, scientific computing and virtual signs, and images and environments.

Tecnologico de Monterrey (ITESM)

Ranked among the 200 Best Global Universities by QS, Tec de Monterrey is among the best in the region, with degrees in data engineering, science and math, nanotechnology, robotics, digital systems, biotechnology, and computing technologies.

ITESM also offers master’s degrees in computer science, electric engineering, online information technologies, software engineering, computational sciences, nanotechnology, cybersecurity, and data science, as well as several doctorates and certificates in business analytics, cybersecurity technologies, information security, Big Data as a business strategy and more.

Universidad Autonoma de Nuevo Leon (UANL)

Ranked 666th among the QS Best Universities for Engineering and 1,209th in the global ranking, students at UANL can take engineering degrees in electronics and automatization, mechatronics, software technology, computing sciences, information technologies, and systems administration.

The university also provides a master’s in information security, information technologies, telecommunications, and nanotechnology.

Another university with interesting and forward-thinking specializations and masters is the National Polytechnic Institute (703th in the QS Best Universities for Engineering ranking).

English Proficiency

Although a large portion of the country does speak English, Mexico’s English capabilities are not as strong as other countries in Latin America, such as Argentina or Costa Rica, according to Education First’s 2020 English Proficiency Index.

However, English has been taught in Mexican public schools since 2011 as part of the National English Program (PRONI), and students are expected to have between 1,000 and 1,900 hours of English before graduating high school. Despite being mandatory, English classes are not part of the curriculum and, as such, are not considered a priority, which in turn hinders hiring, grading, and obtaining materials, as well as proper training.

Yet, as indicated by several foreign IT companies in the country, developers and IT professionals overall speak English fluently and can communicate effortlessly thanks to the popularity of private lessons, but these are not always affordable.

Connectivity

In terms of internet access, the most recent study conducted by the Mexican Internet Association reveals that 7 out of 10 Mexicans age 6 or older have access to the Internet. In just 12 years, the country has quadrupled its number of connections, from just 20 million users to 82.7 million users.

Currently, the Mexican government is supporting the implementation of two infrastructure projects. The goal of the Red Troncal de Fibra Optica is to expand and fix mobile infrastructure across the country, while the Red Compartida, which is already providing 4G coverage to approximately 50% of the population, is expected to provide cellular connectivity to 92% of the population by 2024. However, connection speeds are still a problem for many Mexicans living far from major cities.

Mexico’s communications infrastructure is highly developed and mostly privatized. It is connected to more than 30 Intelsat satellites, 2 Solidaridad satellites, Inmarsat mobile satellite stations, and fiber optic cable lines such as the Columbus II, which allows traffic to flow between Mexico, the U.S., Europe, and, ultimately, the rest of the globe.

Conclusion

Not only does Mexico provide incredible opportunities to find talented human capital, but the country’s convenient time zones, close proximity to the U.S., cultural similarities, lower salaries, and lower cost of living are all incredibly positive benefits.

And if it’s innovation you’re after, remember this: Cornell University’s Global Innovation Index 2020 ranks Mexico as the second-highest performer for innovation in Latin America, putting it well above most of the region in all seven GII pillars.

When companies weigh the pros and cons of a possible outsourcing destination for nearshore IT services, it’s important to remember that Mexico has its share of highlights and obstacles. Yet, U.S. companies looking for staff augmentation or nearshore software development services should give serious consideration to their closest Latin American neighbor.

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Interested in building your team in Mexico? Contact us, and we’ll connect you with top-notch Mexican devs and testers in record time 🙂‍‍