What is Nearshore Outsourcing of Software Development?
What’s commonly understood as a single business concept - outsourcing - can be broken down into three distinct categories: onshore, offshore, and nearshore, outsourcing.
For onshore outsourcing, a company will outsource their work to a local company, keeping the work within the domestic scope.
Offshore, which tends to be the go-to poster for outsourcing, sends work overseas to a foreign country such as India, China, or Scandinavia.
Those two options aren’t as important as nearshore outsourcing. Nearshore outsourcing takes a little bit of column A and column B for an optimal compromise between offshore and onshore outsourcing. In direct terms, nearshore outsourcing is the practice of selecting a software development services company located in a nearby country, in preference to a more distant option. This will delegate control of software development projects to a qualified provider that has the right talent, capabilities, time, and resources to handle the required business needs and deliver digital innovation.
In this instance, our nearshore outsourcing location of choice is Mexico, wherein we’ve already established a mutually beneficial relationship between services rendered and collaboration. As for what makes Mexico the best choice for outsourcing, there are several reasons to pursue such a partnership that we’ll be more than happy to delve into.
Top 8 Benefits of Outsourcing Software Development to Mexico
1. Canada & US Trading Partner
According to the US Census, Mexico has surpassed China and Canada and is now the United States’ #1 trade partner. From January through November 2019, just before the pandemic started, exports to Mexico totaled $237.31 billion and imports totaled $330.51 billion, returning a total trade value at $567.81 billion. These top three countries account for about 45% of all U.S. trade with the world, with the remaining 55% spread among over 200 nations.
The close economic ties between these nations help define a culture of reliable collaboration while securing mutual benefits and quality of work.
2. Proximity and Real Time Communication
Time zones are the Achilles heel of offshore outsourcing. When comparing the U.S. & Canada to India, Central Standard Time to India Standard Time is nearly 12 hours apart, meaning by the time our work day has begun, theirs is already over. Time is money, without being able to effectively communicate with your outsourcing partners, every part of the development process slows down resulting in costly project misunderstandings and delays.
For instance, let’s say your partner in India runs into a coding issue or dependence they need to bring up to you. They send off a message that won’t be properly addressed until the U.S. workday begins. Once we receive it on our end, we then have to work out a solution, which then has to be sent back. When their work day starts, they’ll be able to implement the solution, a solution that cost 3 days of work to come to, when being in the same time zone could have been solved within the same day.
Being able to discuss matters with your partners in real time is vital for the outsourcing process to function properly, meaning you need a partner in your time zone such as Mexico that shares all pertinent time zones for real-time teaming, PST, CST and EST.
In addition, travel is more convenient, affordable, and comfortable, with 2 hour flight from Miami and 5 hour from Vancouver, Toronto or Montreal, all these cities handling direct flights to Mexico City. Were you to attempt a face-to-face meeting with an outsourcing company in China or India?, burning time, money, and resources to send your representatives overseas it is less than ideal.
In contrast to offshore outsourcing, where difficulty in communication prevails, with unproductive business hours trying to communicate with a team on the other side of the world, nearshore outsourcing to Mexico has all the benefits with none of the drawbacks. Plus, even in consideration of other “nearshore” countries in Latin America, Mexico still retains the upper hand when it comes to cost and convenience.
India may have stood in the limelights for software outsourcing for years, but nearshore Mexico companies have uprooted them from their throne.
3. Large Talent Pool
Canada & US aren’t generating enough software engineers to meet the demand, companies need to turn to reliable sources with rich enough talent pools to stem the tide.
Mexico seems to have exactly what North America's companies need. Mexico is currently producing a higher proportion of STEM (Science, Technology, Engineering & Mathematics) than the United States and Canada with 85,000+ STEM graduates per year, meaning there is much less competition between recruiters. According to the U.S. Department of Education, only 16% of American high school seniors are proficient in math and interested in a STEM career.
4. USMCA’s IP Protection
There has been a lot of buzz over the USMCA, abbreviated from the United States-Mexico-Canada Agreement, and about how it will impact and improve the trade relations between our three countries. In Mexico’s case, regarding nearshore outsourcing, the new and improved USMCA gives them an advantage with extra IP protection.
Intellectual Property Rights are time-limited rights that the government grants to inventors to exclude others from using their creations without permission. IP (Intelectual Property) protection is one of the U.S. key comparative advantages, and has been a trade negotiating objective since 1988. The IPR chapter in USMCA establishes an updated legal framework of minimum standards in North America which aims to support tech innovation promoting a healthy balance of rights and obligations.
This is one of the most standout examples of what makes Mexico superior to other nearshore countries. The USMCA explicitly grants these bonuses to three countries: the United States, Canada, and Mexico. Every other nearshore country in Latin America won’t be provided with these unique protections, incentivizing local companies to engage in outsourcing partnerships with Mexico.
To learn more about the benefits of USMCA’s IP protection, follow this link for a more detailed article.
5. Cost Competitiveness
Let’s be straight here: if you take your pick of IT talent in Mexico, you’ll find someone that costs a third as much as you’d find looking locally. There’s a considerable gap between costs of local software engineers in Canada-United States and Mexico. On average, a Senior Developer can charge $156 an hour. The comparable level of talent in Mexico can run you $52 USD, and you won’t have to worry about sacrificing quality either.
What’s important to note here is that outsourcing is not simply a price game. If you hit “lowest price first” on the filter, you’ll probably be able to find lower cost options in offshore locations, going for the cheapest option may seem appealing, but in return you’re taking a higher risk that can cost you later. These cheaper offshore options can’t compare in terms of successful collaboration to teams located just south of the border, and simply going for the cheapest can become a high expense in the end. Feel free to use our Nearshore Teams Cost Calculator to gauge how much a nearshore team in Mexico will run you.
6. High Cultural Affinity
Diversity is a great thing to have, but there’s a major caveat to be had when comparing diversity with cultural affinity. While working with China or Japan may check off the diversity quota, there’s a much higher risk that the differences between Western and Eastern cultures will throw a wrench in the work process. The greater the difference between cultures, the harder collaboration is going to be.
Granted, Mexico is not an English-first speaking country, but the issue here isn’t necessarily language (though shared language does come into play). But Canada, U.S.A, and Mexico share cultural similarities dating centuries thanks to the shared borders between us. Our close proximity permits minimalized communication gaps and provides a unique differentiator so the teams understand one another’s perspectives, way of business, and working. The same cannot be said for offshore companies.
7. High Quality Education
Mexico houses hundreds of universities and educational centers that offer state of the art engineering and IT courses. Around 20% of the country’s public funds are directed to the education sector for tasks such as building or expanding schools, teacher certification, and investments in modern STEM teaching and learning methods. While the U.S. may not necessarily be providing the proper educational framework to promote STEM studies, particularly with computer science, Mexico is making a name for itself and providing high quality education for students to excel.
8. Growing IT Ecosystem
Mexico has a 10% software job growth rate year over year, with over 500,000 IT professionals. Mexico City and Guadalajara, the second largest city in the state of Jalisco, are considered to be the country’s Silicon Valley. As such, it’s become a hub for big tech companies thanks to its growing immigration rates from all over the world to take part in its rapid tech development. Mexico is now home to hundreds of high tech organizations, including IBM, HP, Cisco, Jabil, Toshiba, Oracle, and more. As Mexico’s IT ecosystem continues to grow and evolve, we believe it will become one of the foremost countries for leading technological innovation.
There are many reasons why nearshore outsourcing outpaces any of its peers, but outsourcing with IT Kapital, based in Vancouver, gives our clients a reliable partner that plays within the same law framework and same rules.