Mexico's Burgeoning Outsourcing Industry Threatened by Brutal Border Violence

CIO — Public beheadings. Deadly shootouts. Kidnappings for profit. Not exactly the keywords you want associated with your country when you're trying to build it up as an IT outsourcing destination. The harrowing headlines dominating the news from south of the U.S. border, not surprisingly, have proven to be poor public relations tools for the emergent IT services industry in Mexico. And the timing couldn't be worse. Although it's not clear what effect the U.S. recession will have on its North American neighbors, the Mexican economy and its services industries are tightly tied to the American economy.

The escalation in violence over the last year has been attributed to President Felipe Calderon's crackdown on Mexican drug cartels. On February 20, the U.S. State Department put out a travel alert updating security information for U.S. citizens traveling and living in Mexico. And although drug-related crime tends to center specifically around towns dotting the U.S.-Mexican border—closer to Nogales, Arizona or El Paso, Texas than the country's outsourcing hubs in Monterrey, Mexico City and Guadalajara—perception makes the difference when it comes to winning IT services business from foreign corporations.

"There are many more dangerous locations to attempt an outsourcing operation than Mexico, such as India, South Africa, Israel, Malaysia, Thailand, Colombia and the Philippines," says Scott Wilson, co-founder of outsourcing research firm Brown & Wilson Group. "There is a double standard in image judgments with emerging outsourcing locations. The widespread violence affecting the border cities of Mexico is not occurring near the outsourcing centers, in contrast to what (violence) occurred directly in Mumbai, Bangalore and Delhi, India."

The Mexican kidnappings and murders get more attention stateside by dint of proximity. "At a time when Mexico could, as a country, make huge gains in outsourcing from those American businesses seeking a departure from India, the opportunity is diminished somewhat with the cloud of drug violence along the border," says Wilson. "It has been a welcome relief to Indian offshore technology hubs with coverage of violent outsourcing destinations shifted off them, for at least right now."

Tijuana and Nuevo Laredo are hardly high-tech hot spots. Crime, corruption and a shortage of skilled workers make them impractical locations for IT service providers. While the Brown & Wilson group ranked the border town of Juarez, Mexico the 12th most dangerous offshore outsourcing location, Monterrey, Mexico City and Guadalajara, Mexico all scored higher in customer confidence rankings for offshore risk mitigation than any major Indian offshore location in 2009. "The hype of Mexican violence in respect to threatening outsourced tech operations has been exaggerated," Wilson says.

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