Mexico’s Burgeoning Outsourcing Industry Threatened by Brutal Border Violence

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.”

Mexico’s IT Outsourcing Ratings

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.

While none of the outsourcing centers is crime-free by any means (and certain areas around Mexico City are dangerous), neither are they ground zero for cartel-related crime. Not considering Mexico as a destination for IT services work because of the wave of violence in its border towns is comparable to not doing business in New York City because there may be some areas of the city you wouldn’t feel safe, says Mike Barrett, president of Pounce Consulting, a U.S.-based near shore IT services provider with delivery locations in Guadalajara and Monterrey.

Indeed, a November 2008 Gartner report called Mexico a natural IT services market for U.S. customers based on its geographic proximity, cultural compatibility and similar time zones. “Mexico has considerably evolved its IT services, and the government has fostered incentive programs, industry associations, and a joint approach to IT initiatives between federal and state governments,” the Gartner report says. In addition, limited visa restrictions resulting from the North American Free Trade Agreement (NAFTA) make it possible to “quickly deploy IT resources to U.S. project teams,” says Barrett.

Wilson expects more intervention at the border by the U.S. Homeland Security Department and the Drug Enforcement Agency. He says, suppliers with a local presence “such as Infosys, Accenture and Softtek are taking independent, extraordinary steps to maintain secure centers of operations in Monterrey and Guadalajara in particular.”

Editor’s Note: For more on Mexico’s promise as an IT outsourcing location, please see “Mexico Grows Into Outsourcing Option” and Outsourcing Vendor Genpact Makes Mexico a Passage to India”