My Mexico’s Nearshore Blog

 In 2003, the Mexican government launched a programme, called Prosoft, to promote the country’s tech industry. The goal is to increase the size of the Mexican IT industry to $15bn annually by 2013.

While Europe looks to India as its offshoring destination of choice, Mexico has launched an initiative to promote itself to the US and Canada as a ‘nearshoring’ destination that’s so close to home it’s often within commuting distance.

And the benefits of proximity add up; there are more than 300 flights per day between the US and Mexico. Bandwidth costs on software projects also add up, so the closer your programmers are to corporate headquarters, the better.

Leveraging an application development resources at a Nearshore Development Center in Mexico, allows companies to develop quality software applications typically for 40% less than in-house and offshore Asian providers.

The advantages of working with a nearshore application development partner are quite compelling:

• Software Product Development Expertise – Clients benefit from over 15 years of experience building software products.
• Development Practice – Often offering the best software development methodologies (ex.: Agile) , which help brings greater transparency and alignment to development projects.
• Cost Savings – Companies typically save 40% over hiring permanent employees with most on-demand application development services.
• Cultural Affinity – US, Canada and Mexican culture has had extensive exposure over the years. Cultural similarities facilitate mutual understanding of a project’s objectives.
• Close Proximity – They are located 2 to 6 hours away from most major US and Canada cities.
• Time Zone – They work on Central Time allowing real-time collaboration, which is critical for delivery and providing rapid response to critical issues.
• Flexibility – They are a nimble company allowing for flexibility in engagement model and budgets.
• Low Attrition – They have excellent work environment, keeping attrition very low.
• English Fluency - Communications in English with our bilingual development team is simplified via web meetings.
• Physical infrastructure – Mexico has a world-class communications infrastructure.
• Intellectual Property Protection – Mexico has a solid legal framework to protect intellectual property.
• Low Geo-political Risk
• Business Model Sanctioned by the North American Free Trade Agreement (NAFTA) – There are no export/import tariffs, no limitations on technology disclosure, and there is a special visa program for Mexican engineers.

COST EFFICIENT
The cost advantage of offshore services comes from having more people working at a lower cost geography.

A typical offshore project has an onsite component at the client’s facilities in the US/Canada and an offshore component at the vendor’s development centers in the offshore country.

Man/Hour rates in Mexico tend to be higher than other countries, like India or China, due to a higher cost-of-living.

Mexico’s advantage in terms of cost resides in the possibility to carry out an important amount of work at the vendor’s facility due to closeness. The percentage of work that can be done in Mexico fluctuates around 80%, while in Asian countries is generally around 50 to 60%.

When a high degree of interaction is needed, a typical offshore engagement with India requires measures to mitigate impacts of time-zone difference and distance. Such measures include allocating a significant number of people on-site (customer locations in the US) and having a redundant project leader role, one on-site and one off-shore, due to the fact that travel and voice communication are cumbersome and expensive. In this case Mexico is highly competitive, because distance and time zone have no negative influence in the engagements.

Near Shore engagement configuration has a higher impact in the Total Cost of the Engagement than India’s lower man/hour rates.

Total Cost of Engagement

The Total Cost of Engagement (TCE) evaluates the total expenditures of outsourcing projects. In addition to the hourly rates of engineering talent you must consider the cost of additional management overhead, travel costs, the painful cost of staff turnover, and a certain amount of productivity loss due to the distance and degraded communications. Most of these costs are directly related to the separation in time between teams.

The overall cost of nearshore engagements is equivalent or lower than offshore because of the efficiencies brought about by working in close proximity to the US and in the same time zone.

TCE: Project Team Costs, Project Overhead Costs, Cost of Vendor’s attrition, On-Site Ressources Allocation Costs, Long Distance Costs, Knowledge Transfer Costs, Project Trips Costs, Productivity Losses Costs and Risk Management Costs.

If you would like to learn more about the benefits and savings, I can provide you with an estimate of the true costs of an engagement for any type of projects; you can reach me via email or by phone (located top right). As always, it is better to consider all the facts, costs up front and not have surprises later.