Outsourcing to Mexico: A Frank Appraisal

I didn’t know much about the outsourcing industry in Mexico until I had the chance to listen to Stephanie Moore, a Forrester analyst, speak in a Webinar hosted by service provider Softtek.

You can read a research report by Moore on the topic here. But there’s nothing like a Webinar at times to bring an analyst to life. In this case, she (and we) faced several technical issues, such as: “What? You’re going to change the Webinar hosting service an hour before the event starts?!” and “What? You want me to share the slides from my computer?!” What comes to mind is grace under pressure.

But once the small problems were ironed out, we covered a lot of ground, metaphorically speaking.

India is still the preferred location for IT services, yet the challenges of working with service providers there are rising -- appalling attrition rates, rising labor rates, atrocious infrastructure problems, continuing time zone and culture challenges. The flexibility and customer service that helped make India the destination of choice for offshoring has begun to fray -- particularly among the top vendors such as Infosys, TCS and Cognizant. To continue growing, these companies have had to create more strict processes and adhere to these processes more rigidly. Less customization is going on.

So there are reasons to diversify the geographies you go to for services. That’s where Mexico comes into play.

Moore identifies three areas where Latin America provides an advantage over a strictly-India service play:

• You need a lot of mainframe skills. Interestingly, Y2K work notwithstanding, India doesn’t have a lot of experience with mainframes (particularly, since IBM hauled its equipment away in the late 1970s when the government threatened to nationalize the company). Yet Brazil does.
• If you need real-time collaboration or you’re doing mission-critical support work, you can’t do that with an Indian vendor -- not if you expect to work with the lead teams on both continents. Mexico and other Latin American countries are in the same time zones as the United States, which makes it attractive from that perspective. In other words, Agile is easier to do if your user and your developer aren’t hemispheres apart.
• There’s a cultural affinity between Mexico and the United States. No, the cultures aren’t the same -- but at least the Mexicans know what Gilligan’s Island is, and they have an understanding of American politics, explains Moore.

What else does Mexico offer?

There are a bunch of Spanish-speaking people in Mexico -- millions of them! And those folks understand better than Asia-grown Spanish speakers how to communicate with the 40 million Spanish-speaking residents of the United States.

The government of Mexico is “extremely supportive” of Mexico’s nascent outsourcing industry -- though Moore didn’t give specifics. Also, some IT services groups have achieved SEI CMM quality capabilities, not necessarily level 5, but they’re working on it. The terms of NAFTA make it much easier for US-based companies to bring over staff onsite from a Mexico provider than from an India provider. Plus, the infrastructure -- roads and telecom -- are in better shape.

What goes against working with Mexico? If hourly rate is your sole benchmark, you’ll pay a bit more hiring people based in Mexico. But even then, the costs of project management and travel and hidden expense related to communication challenges may undercut your savings. So don’t rule Mexico out on those terms alone. There’s a smaller pool of IT graduates coming out of Mexico colleges and universities. Also, the English language skills aren’t something you can take for granted. And the market maturity, number and size of vendors are smaller.

She said that Softtek is probably the nearshore leader for Mexico in terms of the number of customers it has outside of Mexico. The firm has four development centers, in Mexico, Brazil and Spain. It has 4,500-5,000 employees and a strong Six Sigma focus.

At some point, I’m sure the Webinar will be available in Softtek’s archives. It’s an informative and frank description of the landscape that you should tune into as you begin to diversify those service providers for your outsourcing.