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For over a decade, India has been the leader of outsourcing providers for companies around the world looking to save on their software development costs. However, as the market becomes more saturated and needs become more specialized, costs have been rising in the mature Indian market, leading buyers to seek alternative sourcing options to meet their IT development needs. In a previous article examining the Indian IT outsourcing market, we briefly touched on the rising number of companies opting for nearshoring strategies.

Nearshoring is a subsection of outsourcing that, as the name suggests, involves clients working with a provider within relative proximity. During the last five years, Mexico and the concept of nearshoring, in general, has rapidly grown as an ideal alternate option for many buyers in the United States. Those looking to make a change in their IT sourcing strategy, particularly small and midsize companies, should consider Mexico for the following reasons:

Cost of Outsourcing IT to Mexico vs India

Cost has historically been the largest advantage of outsourcing to India. However, quality of work has often been a deterrent for many firms opting to retain IT services in-house. In turn, many of the larger outsourcing firms in India have opted to raise their rates while they take in more advanced workers, thereby negating much of the original cost advantage. Furthermore, total costs involved when working with a Mexican or Latin American provider are comparable or even lower (depending on specific needs) than the cost of working with an Indian provider. This is because overhead costs are typically lower with Mexican or Latin American providers and opportunity costs are often higher when dealing with the longer deadlines stemming from incompatible time zones between India and the United States. Although outsourcing rates are rising around the world, a growing number of Mexican service providers has increased market competition, muting the rate at which costs are rising in Mexico. 

Proximity of Mexico to the US

One of the largest disadvantages when working with Indian and other Asian-based outsourcing firms is the long lead times and communication difficulties that often come with workers located across the world. Buyers can save on time by working with an outsourcing provider in a similar time zone while avoiding the exorbitant costs of hiring an in-house developer from the United States. Mexico being in a similar time zone as the United States allows for buyers to work with their IT service providers in real time, significantly reducing the overall time spent on projects. In fact, for this very reason, market leading Indian outsourcing firms such as Tata Consultancy Services (TCS) and Wipro have expanded their presence in Mexico, hoping to grow their market share among buyers in the United States. Guadalajara, in particular, has rapidly emerged in the last five years as a market hub for IT services, with most of these market leaders operating in the region.

Growing Talent Pool of Mexican IT Workers

While India has long been the go-to destination for outsourcing services, Latin America has greatly increased their encouragement toward students going into technology-related careers, with initiatives such as MexicoIT, CodeGDL and MexicoFirst providing assistance to students aspiring to be in the field. This support has resulted in local universities increasing the quality of their STEM education. Furthermore, during the last five years, Mexico has vastly improved its infrastructure for high-speed internet. As a result, Mexico now produces an estimated 115,000 technology graduates per year, a figure that has risen annually at an average rate of 5.6% in the last three years, thereby making up over 20% of all college graduates in the country. This figure puts Mexico in the top six countries with the highest number of IT graduates. The growing talent pool has significantly improved the quality of IT work conducted in Mexico and has provided buyers with greater confidence in seeking nearshoring opportunities.

In addition, Mexico also has lower employee attrition rates than India, ensuring buyers can receive consistent quality of work while working with the same provider. The sheer size of the Indian IT outsourcing market and significant competition in the country have resulted in higher turnover as employees are constantly able to seek better opportunities at a competing firm. This trend impedes buyers that work with a single outsourcing provider from expecting a similar quality of work from project to project.

Summary: IT Outsourcing to Mexico vs India

Ultimately, due to the mature nature of the Indian market, large enterprises seeking IT outsourcing work may be better off working with an Indian provider. Still, Mexico has been rapidly rising, and the market may soon reach a level of maturity to better satisfy the needs of larger firms in the near future.

By Roshan Sathyanarayana

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