'Near shore' outsourcing gains momentum in Mexico

MEXICO CITY – U.S. companies looking to outsource IT services and business processes are increasingly eyeing Latin America, and Mexico in particular.

It's "near shore" versus offshore in action.

Closer to home than India or China, often with a deeper cultural affinity (especially among Southwestern states), Mexico has become an increasingly competitive option in the past five years.

"Mexico has made important advances," said Javier Allard, president of the Mexican IT industry trade group AMITI. "We don't want to compete with India, China or the Philippines. There are many niches."

Neoris, a Mexico-based company that provides IT and business process outsourcing (BPO) services in Mexico, Argentina and elsewhere around the globe, is one of the companies seeing gains, as demand for near shore outsourcing from U.S. companies grows.

Neoris handles the e-commerce portal for a major home improvement retail chain; manages "enterprise resource planning," or ERP, for an auto parts manufacturer and oversees the integration of distribution systems for a shipping company and its clients.

"The U.S. customer is diversifying their portfolio of (IT services) suppliers," said Carlos Díaz, director of Neoris outsourcing services. "Companies that had all their eggs in the Asia basket, mainly India, are diversifying to Latin America."

It's part of a trend toward diversification, according to Softtek, another IT and BPO near shore services provider with operations in Mexico.

Climbing labor costs, attrition and congested infrastructure in India have motivated companies to look elsewhere for alternatives or complementary IT outsourcing over the past five years, according to a 2011 Softtek white paper.

With its massive, highly trained labor pool, India remains the global leader in outsourced IT services by far. But Mexico ranks at the top of Latin American countries, Díaz said.

Mexico has an IT labor pool of around 600,000 people, Díaz said. That compares with 250,000 in Brazil, the second largest market. Argentina and Chile come next, with 70,000 and 20,000 IT professionals, respectively.

Each year, Mexico graduates around 65,000 IT professionals, Díaz said.

Mexico has proximity going for it. There are around 300 flights daily between the U.S. and Mexico. The country operates in Pacific, Mountain and Central time zones, meaning that business hours are roughly the same. Plus, the countries have nearly two decades of business relationships built upon NAFTA, signed in 1994.

"There is a very important cultural affinity," said Allard. "In business, we know each other and we understand each other."

NAFTA provides two other benefits: The pact ensures that intellectual property law similarly covers U.S. companies in Mexico and vice versa, and it provides for easily obtaining business visas to work between the two nations.

Despite a slowdown in the U.S. IT market – the primary driver of growth in Mexico's near shore services sector – Neoris has logged growth at a rate of 35 percent annually over the past four years, Díaz said. The U.S. market is projected to grow between 4 percent and 6 percent annually through 2014.

Photo: Flickr/Randy Pertiet

This post was originally published on Smartplanet.com