Mexico Grows Into Outsourcing Option

For most people, outsourcing to Mexico still conjures up images of maquiladoras, the foreign-owned factories just across the border that import raw materials duty-free and export the finished products around the world for cheap. But the Mexican government wants to change that. Three years ago, the Ministry of the Economy partnered with the Mexican academic community and public sector to create the Program for the Development of the Software Industry (Prosoft), to develop Mexico’s IT sector. In the last year, they’ve redoubled their efforts to publicize IT and business process outsourcing (BPO) offerings.

Mexico can never be another India, says Jes¿s Orta Mart¿z, the ministry’s director general of digital economy. You can’t argue with the numbers: There are only 107 million people in Mexico, which generates 65,000 IT professionals annually, according to Martinez. Mexico has more than 2,000 IT companies but just three Capability Maturity Model (CMM) Level 5 providers (the Software Engineering Institute’s best ranking for software development processes) and another seven assessed at Levels 3 and 4.

So Mexico is promoting its differences. The number one selling point? Proximity. Sure, half the CMM Level 5 development shops are located in India, but time differences can make coordination—and travel—tricky. And Mexican BPO providers have an edge for the growing U.S. Hispanic market, he says.

Mexico’s largest IT services firm, Softtek, posted a 2005 revenue of $140 million and counts GE, HP, and Citigroup as clients. IBM Global Services employs approximately 1,200 developers in Guadalajara and Mexico City in its Application Services M¿co division. Perot Systems is establishing a captive center in Guadalajara, like IBM. “We realized we had all our eggs in the India basket,” says Enrique Cortes, director of business process services for Perot, which employs around 6,000 workers in India. After talking to IBM and HP, Cortes concluded Mexico would be a good place to source infrastructure services for American clients because of cultural affinity, time zone compatibility and Nafta, which provides Treaty Nafta (TN) visas for travel back and forth (like H-1B visas, but with no cap). Perot is working with a local provider, Sinapsis, to get the center running by January 2007.

Around 2001, Bill Wood gave it a shot too. Then senior VP of product development at Colorado Medtech, Wood signed a deal with a firm in Enseneda, Mexico, to prototype a proprietary software system. He was impressed with the team’s quick dash to proof of concept stage. But in the end, “they underdelivered,” Wood says. He brought the project back in-house. To be fair, Wood, now VP of product development for Ping Identity, a Denver-based maker of identity management software, had similar problems in India and now uses Russian IT services provider Luxoft.

Alfonso R. Gonzalez, CIO of Steelscape, a Kalama, Washington, manufacturer of steel coils for construction, has had more success with Neoris, a Miami-based outsourcer with development centers in Mexico and eight other countries. The vendor has handled Steelscape’s SAP and .Net development and support at its Monterrey facilities since 2004. Gonzalez likes the provider’s responsiveness and pricing. But for large projects, he must often send someone from Washington to assist Neoris, particularly during the requirements and design phases.