Mexico Near Shore

Value of Mexico Near Shore for IT Outsourcing Services

Forrester Research recommends4; “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.”

 

The value provided by Mexican nearshore providers can be defined as:

 

 

1. World Class Quality

2. Low Risk and Convenient

3. Cost Effective

 

World Class Quality

 

Fortune 500 corporations that currently use outsourcing services in Mexico have mentioned that process maturity matches or exceeds India.

This perception is based on the maturity of Mexican leading companies, their quality, adherence to industry standards, disaster recovery plans, business continuity plans, security standards and quality improvement initiatives implemented by these companies.

 

There are 3 companies that have been assessed as CMM Level 5 and more than 30 that have adopted the SEI CMM model and are at different stages in their maturity process. The Federal Government thru the PROSOFT program (Software Industry Development Program) has implemented several initiatives to support their evolution on the CMM model.

At the same time, the leading companies in conjunction with federal and state governments, are creating value chains to integrate small and medium size companies into their services, thus increasing the capabilities and number of companies that participate in the nearshore services arena.

 

 

Proven Experience

 

There are several vendors suitable for the US market in Mexico, among them are Softtek, creator of the Near Shore®7 concept, with its Global Delivery Centers in Mexico City, Monterrey and Aguascalientes, as well as IBM Global Services with development centers in Mexico City and Guadalajara.

There is an ample scope of services that Mexican vendors can provide to Fortune 500 companies, among those are:

 

· Software Development

· Application Maintenance and Support

· Quality Assurance and Testing

· As well as a vast number of Business Process Outsourcing alternatives which include:

· Call Center

· Human Resources processes

· End user support

· Document Management & imaging solutions

 

These are some comments from industry analysts regarding the capabilities of Mexican nearshore vendors:

 

“Gartner believes that enterprises will increasingly look at nearshore destinations to solve their sourcing problems. With this acquisition, Mexico and Softtek become stronger candidates for U.S. customers to consider”, Gartner.6

 

“IBM has high hopes for its Mexican operations and expects to grow them during 2003. It does provide language training for Mexican employees, but it does not consider the language issue an impediment to scalability and has no problem finding English speakers in Mexico City or Guadalajara.” – Forrester4

 

About Hildebrando: “It has a strong US client list and experience in a breadth of technologies from COBOL to Java.” – Forrester4

 

Corporations that acquire services from Mexico are typically Fortune 500 companies, with a mature global sourcing program, with experience in different geographies and very strict quality and service level requirements for their vendors. However, because of its simplicity to implement, other smaller companies primarily in the software or technology sectors are using near shore services as their sole provider of IT services.

 

Low Risk and Convenience

 

Mexico has unique elements that contribute to eliminate the inconveniences of global sourcing, especially for North America.

Main factors that dissuade companies to reap the benefits of offshore outsourcing include the following:

 

· Legal Risks: Aspects like intellectual property protection, information security, contract dispute resolution and visa availability.

· Relationship Management: Time Zone difference, expensive and cumbersome travel and telecommunication costs. Also, there is an increasing concern regarding high turnover among Indian vendors.

· Negative Public Image: The premise that US companies that do offshore outsourcing are exporting American jobs, is an issue that has been fostered increasingly in the media and political circles.

 

With this context the advantages that are unique to Mexico are:

 

North America Free Trade Agreement

NAFTA sets the groundwork to provide certainty to parties in the cross-border commerce of services between Mexico, US and Canada.

Intellectual property is protected under the umbrella of NAFTA, thus providing hiring entities the means to avoid legal processes abroad that tend to be long, expensive and in some cases uncertain.

As part of NAFTA, Mexico is not subject to the H1B visa cap imposed by the US NIS. Furthermore, the Agreement contemplates temporary (TN) visas for Mexican Nationals. Nevertheless, it is important to remark that due to proximity, there is a limited need for Mexican professional to work in the US permanently.

Mexico is the second largest buyer of US products and services. Since the beginning of NAFTA, Mexico imports services and goods for around US$100 billion annually, while India’s imports from the US are less than US$5 billion; that is twenty times less than Mexico5.

Hiring services from Mexico contributes to a larger commercial exchange.

 

Proximity

Proximity brings offshore services to a whole new level.

Being in the same time zone allows for agile communication among team members. Work conversations can take place in an spontaneous manner, either on the phone or using Instant Messaging technologies, which can rarely happen with India or China, where communications have to be planned, having to allocate specific times for conference calls, this times tend to be off-hours in order to address 11-12 hour time-zone differences.

Closeness also allows team members to travel without hassle between Mexico and the US. This fact opens collaboration opportunities that are impossible with alternatives in Asia; like holding face-to-face follow-up meetings, have specialized personnel on-site on demand, and in case of a contingency the team can react accordingly.

 

Business travel between Mexico and the US is much more productive than with Asian countries, beyond the proximity factor, productivity is fostered by the similarities between the two countries in terms of infrastructure, like electrical power working at 110 volts, as well as cellular and paging services that provide seamless services for North America. These factors enable the possibility to have productive business travels of one or two days, which is not feasible in India.

Cost Efficient

 

The cost advantage of offshore services comes from having more people working at a lower cost geography.

 

A typical offshore project has an onsite component at the client’s facilities in the US and an offshore component at the vendor’s development centers in the offshore country.

Man/Hour rates in Mexico tend to be higher than other countries, like India or China, due to a higher cost-of-living.

Mexico’s advantage in terms of cost resides in the possibility to carry out an important amount of work at the vendor’s facility due to closeness. The percentage of work that can be done in Mexico fluctuates around 80%, while in Asian countries is generally around 50 to 60%.

When a high degree of interaction is needed, a typical offshore engagement with India requires measures to mitigate impacts of time-zone difference and distance. Such measures include allocating a significant number of people on-site (customer locations in the US) and having a redundant project leader role, one on-site and one off-shore, due to the fact that travel and voice communication are cumbersome and expensive. In this case Mexico is highly competitive, because distance and time zone have no negative influence in the engagements.

 

With this context a typical engagement configuration is as follows:

Near Shore engagement configuration has a higher impact in the Total Cost of the Engagement than India´s lower man/hour rates.

As the graphic shows, each percentage point of increased offsite leverage has a significant impact in lowering the Total Cost of the Engagement.

Softtek® and the Softtek logo as well as Near Shore® Services are registered trademarks that belong to Softtek Integration Systems and its affiliates and subsidiaries

 

Inconvenience Factors of Offshore

 

Legal Risks

Relationship Management

Negative Public Image

Concerns

Lack of intellectual property protection

Risks in information security

Contract dispute resolution

Visa availability

Time Zone Difference

Cumbersome and expensive travel

Expensive communication infrastructure

High vendor attrition rates

“Exporting Jobs”

 

 

Convenience Factors of Mexico

NAFTA

Provides the legal groundwork that protects the parties in dispute resolution and intellectual property

No dependence on cap of H1B visas. TN visas are available for professionals

 

Allows to reduce the time and costs associated with legal processes

Facilitates transit of professionals

Temporary imports are considered as part of NAFTA

Strengthens the North American Region

Increases commercial exchange

Fosters a virtuous circle with the number two buyer of US services and goods

Proximity

Fewer professionals are needed on-site than with Asian alternatives

Contingency management is easier and more effective

 

Facilitates day-to-day communication

Opens collaboration possibilities

Minimizes project risks

Better communication helps in reducing turnover

Higher daily work and business travel productivity

The Near Shore model favors the strengthening of capabilities.

 

India

Mexico Near Shore

On-Site Team

40% of team

20% of team

Off-site Team

60 %

of team

80%

of team

Time-Zone Difference

10-11 hours

0 Hours

(Central US Time)

Travel Time

25 hours

1 to 5 hours