The field of nearshore software engineering is always changing. It’s critical to comprehend the trends that will drive the market in 2023 if you want to keep one step ahead of the competition, especially when considering a nearshore destination.
The nearshoring of jobs to other nations has received a lot of attention. According to a recent report by Grand View Research, the global nearshoring market size is expected to reach 525.2 billion by 2030, growing at a CAGR 9.4% from 2023 to 2030. The survey also discovered that nearshoring is most common in the manufacturing, healthcare, and IT services sectors.
And for US companies, the obvious choice is Mexico. Why?
Mexico’s Economy Overview
Mexico is at the top of Latin America’s rankings for innovation, business accessibility, and competitiveness. The Mexican government started a series of changes in the middle of the 2000s to promote competition and expand the nation’s energy and telecoms markets.
Telecommunications expenses have decreased significantly as a result, and service accessibility has grown, providing the groundwork for a developing digital economy. Furthermore, denationalization of the energy industry has boosted foreign investment, raised production, and sped up the transition to renewable energy sources. INADEM (the national institute for the entrepreneur) put government funding in a different project to kick-start the venture capital sector.
US firms are well-protected in Mexico with regard to patents and other intellectual property rights. These efforts were strengthened even further with the assistance of the Free Trade Agreement (FTA) that Mexico has with other nations with the signing of the United States-Mexico-Canada Agreement (USMCA). The USMCA has a number of provisions that modernize the mechanisms for protecting and enforcing intellectual property (IPR) in Mexico, including registration, preservation, and enforcement systems. The agreement guarantees that rights holders in the United States will obtain IP protection equal to that found in the United States, even though the regulatory institutions that oversee IPR in Mexico differ from those in the United States.
Moreover, findings reveal that during the majority of the years considered, nations like Mexico, Brazil, Chile, Argentina, Panama, and Cuba have held the top spots in the quality-of-inventions rankings. Yet, it is clear that Mexico contributes significantly to the region’s patents and has held the top spot in the overall ranking for nine out of the twenty years of the study. Also, out of the seventeen nations, the nation has never fallen below third rank since 2000.
So, where do most US-based IT companies primarily operate?
Best Nearshoring Destinations for IT Services in Mexico
In 2023, there are several top nearshoring destinations for software engineering that stand out from the rest, based on factors such as quality of talent, cost-effectiveness, and cultural alignment. Here we will explore the top three nearshoring destinations for software engineering in 2023:
1. Tijuana, Baja California
The magnitude of investment in Tijuana, Ensenada, and Mexicali, which takes advantage of the region’s proximity to San Diego and California, is what distinguishes Baja California from other regions. This has made it possible for the Cali-Baja region, as it is known locally, to have a vibrant cross-border business.
Tijuana is quickly emerging as a top nearshoring destination for software development in 2023. According to a recent report by Tholons, Tijuana is ranked among the top 50 digital nations in the world, ahead of other well-known nearshoring destinations like Costa Rica and Chile. The city boasts a strong technical talent pool, with a growing number of graduates from local universities specializing in computer science and engineering. In addition, top-tier educational institutions are well-known for their software engineering programs and high achievement rankings, plus the state has 32 universities offering 103 professional degrees.
One of the key advantages of nearshoring to Tijuana is cost-effectiveness. The cost of living in Tijuana is significantly lower than in major U.S. cities like San Diego, which is just 20 miles away. This means that companies can benefit from lower costs of living and costs of offices while still maintaining a close proximity to their operations in the United States. In addition, the Mexican government offers several tax incentives to companies that set up operations in the country, including a reduced corporate tax rate for software engineering companies.
Another advantage of nearshoring to Tijuana is its growing reputation as a hub for innovation and technology. In recent years, the city has seen a surge in the number of tech startups and incubators, which has led to a more dynamic and entrepreneurial culture. This, combined with the strong technical talent pool, makes Tijuana an attractive destination for companies looking to stay on the cutting edge of innovation in software engineering.
2. Guadalajara, Jalisco
Jalisco is the fourth-largest economy in Mexico after Mexico City, the State of Mexico, and Nuevo Leon. The state shows strong rankings for innovative companies and startups, trademark and patent applications. Furthermore, 40% of Mexico’s IT firms are located in the manufacturing-heavy state of Jalisco, which is also a home to businesses that specialize in BPOs, software engineering, and other leading industries.
In Guadalajara, there are more than 1,000 high-tech companies supporting 150,000 jobs, plus significant clusters in the fields of technology, e-commerce, financial services, healthcare, and transportation. Moreover, Guadalajara, in contrast to other regions in Mexico, has a strong R&D foundation.
The government, universities and industries have consistently aligned and collaborated to create projects like Consejo Jalisco 4.0, the Jalisco Institute of Information Technology (IJALTI), the Jalisco State Council of Science and Technology (COECYTJAL). These organizations had helped to attract international investment and companies to Guadalajara, despite the location far from the US border.
3. El Bajío, Central Region of Mexico
The Bajío region in central Mexico provides intriguing potential while not being as far along in its efforts to create startup and innovation ecosystems. This region includes parts of the states of Zacatecas and Jalisco as well as all or part of the following four states: Aguascalientes, San Luis Potos, Guanajuato, and Querétaro, which is a significant manufacturing hub that has had stronger growth than much of Mexico.
Particularly among the Mexican states, Aguascalientes, Guanajuato, and Querétaro have high levels of economic competitiveness. The region has emerged in recent decades as one of the top investment destinations for foreign capital, second only to the northern border states, particularly in the automotive and aerospace industries. A sizable IT sector is expanding thanks to a robust university and public technology research infrastructure.
To sum up, nearshoring is a fantastic opportunity for US companies to continue their operations in a place with vast talent pools, with cost-effectiveness, same time zone, and cultural proximity. Mexico is becoming a more popular location for nearshoring, and this growth is expected to continue in 2023. You just have to choose your nearshoring destination.
Contact us at ITJ to learn more about how we can make that happen.
ITJ is devoted to serving fast-growing and high-value market sectors, particularly the Internet of Medical Things (IoMT), working with innovative medical device companies looking to improve people’s lives. 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. For more information, visit www.itj.com.