Mexico placed 14th when management consulting company A.T. Kearney released its first report ranking the best offshoring nations in 2004. Worse still, the nation slipped in subsequent editions, falling to a low of 17th in the firm’s Global Services Location Index the following year. Back then, A.T. Kearney’s analysis concluded that “Brazil has the best people skills in the region” and that a variety of challenges made Mexico an afterthought.
Fast-forward a decade later and most of these hurdles have been overcome. Mexico ranked 4th in the world among outsourcing locations in the company’s 2014 report, and it has positioned itself as by far the most appealing location in Latin America. “Mexico has definitely risen — not only in our index but also on people’s radar,” said Johan Gott, senior manager at A.T. Kearney.
Mexico has raced past top regional competitors Brazil and Chile — which have each fallen in the global index over the past decade — and it is now right on the heels of the outsourcing pioneers in Asia.
In the past, India and the Philippines offered labor-cost savings that nowhere else in the world could match. Combined with a relatively large English-speaking workforce, it made sourcing from one of these Asian destinations a no-brainer for most companies looking to outsource IT work. There has been a rise in wages in those locations, however, and a corresponding increase in bilingualism in Mexico.
Mexico’s Ascendance to the Top Five
Even after that initial paradigm shift, Mexico’s rise wasn’t instantaneous. It took a few years, as the domestic industry grew and the nation’s programming talent matured, for some U.S. firms to get comfortable choosing the relatively new kid on the block. Now, with companies increasingly seeking higher-level work, Mexico has only become more attractive. “The nature of work has changed from being very transactional and labor-arbitrage focused to becoming more of a collaborative partnership between colleagues in different countries,” said Gott.
Mexico ranked 4th in the world among outsourcing locations in the company’s 2014 report, and it has positioned itself as by far the most appealing location in Latin America.
Due to cultural affinity, proximity, and time-zone similarity, Mexican service centers are now viewed as being able to maintain a relationship with U.S. clients that Gott characterizes as typically “congenial and close.” That, plus the quality of engineers and programmers that have graduated from high-level schools in places like Guadalajara and Monterrey over the last decade, mean that Mexico has never looked better.
“If you look back to 1998 or 2000, the type of work that was sent offshore was the mostly routine-level work,” said Gott. “This was the stuff you shipped off and forgot about more or less. Whereas now the level of complexity in work that is being shipped offshore has increased exponentially. The quality of the labor force has really improved as a factor.”
For those companies that are still sending off basic IT work, the Asian nations remain as good an option as they were in 1998 or 2004. But for projects that require problem solving and creativity, nearshore makes more sense. And by earning a reputation for this type of work, Mexico has set itself up to not only thrive now — but well into the future, even as automation takes over. “A lot of those jobs we talked about in 1998 are increasingly becoming automated,” said Gott. “They are to a large degree still around, but in the next five to 10 years you are going to see almost the end of those types of jobs as the cloud and automation become more and more ubiquitous and are essentially able to replace a big part of that human component.”
Such a shifting landscape means that the quality of a country’s labor force is more important than ever. The more it can show its ability to carry out complex tasks and maintain high-level interpersonal communication with clients, the more interest it will attract from the global business community. That is exactly what has been happening over the past decade in Mexico, a country that is now full of talent that cannot be replaced by robots.
Yes, there was a time when cost made the nation a second-tier delivery center, but its diverse skill set and vast human capital have forced it into the forefront. Mexico has risen, and it isn’t going anywhere — but further up — anytime soon.