Outsourcing guide: Mexico

Americans tend to view Mexico as a Third World country, which is technically the case. Less appreciated is Mexico’s rank as the 11th-biggest economy in the world. With an important economy so close to the U.S., it’s no surprise that Mexico is a player in the global market for IT outsourcing services.

“There is a very large, educated, young population. There are plenty of people available for the work, including skilled technical people,” says Raymond Duran, an account executive in the Juarez, Mexico, office of GECIS Americas, an outsourcing vendor that’s part of General Electric Co.

“The talent pool is similar to the U.S. for a much cheaper price, at least a third the price,” says Gary Taylor, controller for KPMG International’s Dallas Accounting Service Center, which outsources accounting services and some programming to GECIS in Mexico.

David Mard has a somewhat different view of Mexico’s cost advantages. The director of IT at Mexico Express, a regional courier service in La Mirada, Calif., says he finds that on larger IT projects, outsourcing to Mexico saves 50 per cent to 60 per cent of the cost of doing the same project in the U.S. But on smaller projects, there’s little or no savings.

“The price for an application developer in the U.S. is US$100 to US$125 per hour and US$20 to US$30 per hour in Mexico, but it takes four times as many people do to the project in Mexico.” When asked why, he says, “I don’t know. I just know the larger the project, the more the cost savings.”

Lower costs are, of course, a driving force behind outsourcing to any country, but Mexico has some additional positives going for it. According to Stephen Lane, an analyst at Aberdeen Group Inc., these include proximity to the U.S., a workforce that is well educated (though a small part of the total population) and a good location for doing business in Latin America.

Location is one reason why Mexico Express outsourced to Mexico. Having programmers who know the geography and cities – and who understand the regional business culture – is a “huge advantage,” says Mard.

In addition, Mexico has three technology parks. Monterrey Technology Park, located 15 minutes from Monterrey’s International Airport and 120 miles from the U.S. border, is designed to house multinational companies. Apodaca Technology Park is also located near Monterrey, and Guadalajara Technology Park is located in the heart of Mexico’s version of Silicon Valley.

Mexico does have its limitations. Peter Bendor-Samuel, CEO of outsourcing consultancy Everest Group in Dallas, notes that Mexicans with a good education have a lot of job options, including going to the U.S. “People have struggled with maintaining staff there and expanding rapidly,” he says. “That will reflect on the quality of your work and the price points.”

Mard says the Mexican programmers he has worked with haven’t been good at taking a project from beginning to end. They’ve been better at development than design and have required design specifications to be as detailed as possible.

For example, he says he asked for a program to produce a printed customer receipt. What he got was a program that produced a receipt, but with prices rounded to a trillionth of a cent. When Mard said that didn’t make sense, the response was that he hadn’t specified that he wanted it otherwise. “If we are specific, they do a dynamite job developing code, but if we’re vague, there’s trouble,” he says.

Duran says you should always make a site visit to confirm what the outsourcer says. For example, an outsourcer might accurately say that the computer room has electric generator backup, but that doesn’t mean the workstations have uninterruptible power supplies. As a result, in a blackout, such a facility would effectively be closed because all the workstations would be down.

Be sure to ask how much experience the management staff has, and talk to the production people to make sure they understand the processes they’re working on. “In Mexico,” Duran says, “you have a lot of small mom and pop shops that try to get into (business process outsourcing), so as a customer, you have to validate what they can do.”

While Mexico has its shortcomings, they haven’t dissuaded Mard from outsourcing there. “I feel more comfortable doing business in Mexico,” he says. “It’s just a two-hour flight, and I know nothing about India,” where he has also considered outsourcing. Overall, Mard says, “we’re very, very satisfied.”

– Horowitz is a freelance writer in Salt Lake City. Contact him atalan@ahorowitz.com.