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Nearshoring in Mexico: Pros and Cons

May 19, 2022


So you’ve narrowed down that a nearshore solution is the best option for your organization. Presumably, you’ve also considered Mexico as a candidate country for your future operations. Well, these are the pros and cons of nearshoring to Mexico you need to know:

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Pros

  1. Larger talent pool

Sometimes the person you’re hoping to recruit — the ideal candidate for the position — lives on the other side of the border. This is where nearshoring comes into play. With this strategy, you may choose from a genuinely larger pool of skilled software specialists. This way, you get to collaborate with highly experienced engineers to produce excellent products for a fraction of the expense of hiring in-house professionals.

Crucially, in Mexico, according to data from the most current survey by the Mexican statistical office (INEGI), there are about a million people with studies in computer science and IT, with 68% being male and 32% being female. “Mexico is now one of the top producers of engineers in the world,” said Oscar Suchil, director of graduate affairs at the public National Polytechnic Institute, in a Washington Post article. Moreover, more than half of these professionals (56%) are under 35 years old, with the largest group being the youngest, freshly graduated (20 – 24 years old). It is a vast talent pool and a significant area of opportunity to seize for recruiters worldwide. 

2. Strong protection of IP rights

In Mexico, US corporations are well-protected in terms of intellectual property. The signing of the United States-Mexico-Canada Agreement (USMCA) bolstered these efforts even further and the support of the Free Trade Agreement (FTA) that Mexico has with other countries. The USMCA includes several elements that update Mexico’s intellectual property (IPR) machinery, including systems for registering, preserving, and enforcing IPR throughout Mexico. Though the regulatory institutions that supervise IPR in Mexico differ from those in the United States, the agreement assures that rights holders in the United States will receive IP protection comparable to that found in the United States.

Intellectual property law is addressed in Chapter 20 of the USMCA. The chapter covers a wide range of IP-related subjects. Here are a few of the most noteworthy IPR clauses: Copyright Terms, Notice and Takedown System, Trade Secrets, Geographic Indicators, Industrial Design, etc.

Also, according to NAPS, US firms enjoy far better intellectual property rights protections in Mexico, owing to a long history of securing IPR protections through international treaties. 

3. Availability of Infrastructure

Infrastructure accessibility is as crucial as finding tailored software engineering teams when looking for a nearshore partner. Therefore, it is imperative to find a location that satisfies a business’ needs, with amenities like electricity, technological hubs available, water, transport, etc., should be considered. 

In the past, Mexico was formerly renowned for its maquiladoras, low-cost assembly facilities, and low-cost exports. Still, technology advances have shifted the country’s focus, and it now possesses Latin America’s most promising tech industry.

The Mexican government has spent considerably on infrastructure development to build Mexico a global industrial base and has revealed a plan to spend more than $40 million on infrastructure in 2019. As a result, Mexico’s established industrial regions provide essential services to enterprises seeking foreign direct investment. Now, Tijuana, Guadalajara, Monterrey and Mexico’s City Tech Scenes are the protagonists.

4. Efficient communication

Your expanded development team’s cultural and geographical proximity also facilitates more efficient communication.

Cultural commonalities are a significant benefit of Mexico’s closeness to the United States; plus, about 24 million people study English in Mexico. Over the last decade, the population of English learners has grown, thanks in part to government programs targeted at improving English proficiency.

Furthermore, the lower travel time between your headquarters and your expanded staff allows you to arrange physical meetings and activities more frequently. This promotes teamwork, team spirit, and a genuine sense of belonging to the business culture.

Cons

  1. Be in sync with Mexican Regulations

A challenge for US companies may be to be updated with the last changes in Mexican Regulations regarding their industry. Among them are Normas Oficiales Mexicanas (NOMs): Mexican government standards. Mexican voluntary standards are known as Normas Mexicanas (NMXs), Federal Labor Law: The laws that control labor concerns, IMMEX (Industry Manufacturer Maquiladora y de Servicios de Exportación): Tax breaks for US manufacturers.

During nearshoring to Mexico, businesses must be cautious about these restrictions as they may present a struggle in terms of time.

2. Understanding Investment Costs

The purpose of nearshoring is to reduce expenses while improving profit margins. If the firm cannot attain this primary purpose, the entire effort will be in vain.

For seizing and taking advantage of the nearshore process, companies must determine how much it will cost to establish operations in a new nation via a well-planned financial business strategy concerning all touchpoints: labor, logistics, service, taxes, infrastructure, etc. Nothing can be left off the hook. 

As with every business decision, nearshoring to Mexico can present pros and cons. Inspect each one of them with a magnifying glass.

Companies must strategize to overcome hurdles such as Mexican legislation, investment costs, and cultural adaptation. Use the information presented above to choose where you should begin and help you make the best decision.

About ITJ

ITJ serves fast-growing and high-value market sectors. With a unique BOT (build, operate, and transfer) model that sources only the best digital talent available, ITJ enables companies in the US to create technology centers of excellence in Mexico. We create long-term relationships with partners and build highly-trained and reliable teams. For more information, visit www.itj.com.

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