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Companies today might find it challenging to reduce costs without sacrificing customer experience and service quality. Cost centers, such as in-house contact center operations, are often scrutinized when companies strategize to improve efficiency and reduce expenses.
Cost is often the deciding factor for outsourcing, whether to call centers or virtual assistants in Mexico. Without proper cost analysis, companies might think in-house manufacturing is more cost-effective than nearshoring in Mexico, but this is far from the truth. Let us explore why.
Three Reasons Nearshore Outsourcing to Mexico Is Cheaper
To begin, what is business process outsourcing (BPO)? It involves contracting non-core business functions to a third-party service provider. Nearshore outsourcing is a type of BPO where companies contract vendors from nearby countries. For example, a company based in the United States can work with a BPO firm based in Mexico.
Various factors lead companies to outsource to Mexico. Challenges such as manufacturing issues in China and inflation make Mexico an attractive outsourcing destination. For American companies, in particular, the geographical proximity between the two countries makes outsourcing to Mexico an optimal choice.
However, the decision to outsource ultimately boils down to cost savings. Nearshore outsourcing to Mexico offers a more cost-effective solution. Uncover the nearshore outsourcing advantages and the rationale behind this choice.
1. Lower Labor Costs
Labor costs take up most of the operating expenses when launching an operation. Labor costs involve compensation, payroll taxes, and benefits on top of recruitment and training expenses. It accounts for up to 70% of the total business costs for most companies.
When directly comparing labor costs, a fully burdened, semi-skilled call center agent in Mexico makes an average of $1,299 per month compared to the $2,578 monthly salary in the U.S. The fully burdened rate in Mexico includes all government-mandated benefits, which are not automatically part of the salary wages listed in the United States.
Base wages are smaller in Mexico, although they differ per job level across the board, allowing BPO companies to offer more affordable solutions.
2. More Affordable Recruitment
On top of base wages, the cost of hiring and retaining workers in Mexico is more affordable than in the U.S. due to the former’s abundant workforce. Hence, a more cost-effective solution for companies is nearshore outsourcing to Mexico.
The country produces over 100,000 engineers and 130,000 computer science graduates annually. With manufacturing, software development, and technical support outsourcing being some of the most outsourced functions in the country, finding talent is easier than in the U.S.
Moreover, the United States is currently facing a nationwide recruitment crisis for industrial and manufacturing roles because fewer people are applying for production than there are vacant roles. According to Deloitte, the U.S. manufacturing skills gap might leave as many as 2.1 million jobs unfilled by 2030.
People willing to work in manufacturing positions often demand a higher salary than the average wage, making the expense and timeline for recruitment in the said role higher.
3. Cheaper Industrial Real Estate
The demand for industrial real estate is still high, especially within the U.S. and Mexican borders, due to proximity and convenience. Client companies outsourcing manufacturing can save on logistics and transportation costs by using these established locations near the U.S.
Notable savings on lease base rates are also worth considering, although the rates are higher near the border region. Depending on the location, rent is still approximately 40%–60% cheaper in Mexico than in the U.S. So, BPO companies based in Mexico can save on real estate costs.
Mexico also has several industrial centers—Monterrey, Queretaro, and Hermosillo—with a competitive workforce and convenient transportation. Considering real estate and labor costs, it is safe to say that a more cost-effective solution for companies is nearshore outsourcing to Mexico.
Cost of Nearshore Outsourcing vs. In-house
You must consider all costs required to operate an in-house department when comparing nearshore outsourcing and in-house hiring. For example, you pay $18 per hour for data entry services, but that is not your complete hourly rate. The employee’s base wage rate is only one of the line items you must include in your calculations.
As a rule of thumb, the fully loaded or all-in hourly rate is 2x to 2.5x the employee base wage rate since the total costs include hiring, training, management, insurance, benefits, technology, facilities, and more. If you pay $18 per hour, your in-house, fully loaded hourly rate ranges from $36 to $45.
Other in-house operations might even have a higher all-in hourly rate. Operations running lean and with favorable cost structures will have a lower, fully loaded hourly rate.
Suppose your company runs an in-house data entry team and wants to explore more cost-effective options, so you are looking into nearshore outsourcing to Mexico. How will you identify the potential savings? Here are the right and wrong ways:
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Comparing the costs this way gives you a more accurate overview. This method should let you decide more about your project’s needs and goals.
Factors to Consider when Comparing Nearshore with In-housing Costs
Inaccurate comparative cost analysis and data lead to inaccurate decisions about contracting out non-core functions to a third party. You can only achieve an accurate, apples-to-apples comparison when you account for all applicable cost components, and only then can you truly reap the cost-effective benefits of nearshore outsourcing to Mexico.
Here are the cost components:
Labor and Staff
Labor and staff budgets involve various line items apart from an employee’s base pay. Other cost components include benefits such as:
- Paid time off
- 401k
- Parental leaves
- Health insurance
- Medicare
- Social security taxes
- Federal and state worker’s compensation taxes
Other perks, such as wellness programs, tuition reimbursement, and childcare, should also be considered. According to the U.S. Bureau of Labor Statistics, costs relating to employee benefits make up almost 30% of the total employer costs for employee compensation (ECEC).
The compensation of support resources such as coaches, trainers, supervisors, and quality assurance team members is also an additional expense item. However, these expenses are factored into the total rate when you outsource.
You can save significantly on labor and staffing costs when nearshore outsourcing to Mexico because the service provider includes the following in their total monthly fee:
- Wages, taxes, and benefits of the third-party team
- Hiring and quality management costs
- Chargebacks for business services such as information technology (IT), accounting, and human resources
Executive Management
Back-office outsourcing vendors include the cost of executive management in the hourly or monthly rate they propose to clients. The same cost component must be considered in-house. Client companies must include the cost of each supervisor, manager, and director with direct management oversight of the function.
Another cost-effective benefit of nearshore outsourcing to Mexico is access to an experienced leadership team without hiring them internally. For example, if you outsource a call center, you do not need to hire a director whose average salary in the U.S. is between $145,800 and $198,400.
The all-in outsourcing cost also includes the following:
- Salary of each front-line team leader
- Compensation of every senior executive
Overhead and Facilities
Companies with in-house call centers assume all the infrastructure costs on top of the facility equipment and workstation costs. For a company that manages a call center internally, here are examples of facilities and overhead expenses incurred:
- IT tools and networks
- Call center software and maintenance
- Facility rent, leases, utilities, and maintenance
- Supplies and consumables
- Business continuity
- Compliance and other certifications
- Travel costs
A company must consider the total cost of ownership (TCO) for premise-based solutions instead of just the technology’s upfront costs. The TCO for call center technology includes the capital costs for equipment (licenses, software, and hardware), deployment costs (internal and external resources), technology upgrades, and yearly support and maintenance costs.
Conversely, the cost of a cloud-based or contact center as a service (CCaas) option is based on usage. According to research from Aberdeen, outsourcing to a cloud-based call center saves 27% more on the annual call center cost than an in-house one. A vendor in Mexico includes the following in the total cost per hour:
- Software and storage servers
- Applications for contact handling and work from an office (WFO)
- Computer hardware, telephones, headsets, and monitors
- Call handling hardware such as interactive voice response (IVRs), dialers, and automatic call distributors (ACD)
- Maintenance contracts
- Tech support services
Telecommunications and Networking
According to Strategic Contract, networking and telecommunications costs account for 3.7%–6.5% of the total in-house call center cost. However, nearshore outsourcing to Mexico makes networking and telecommunications expenses more cost-effective.
Here are some call center telecommunications and networking cost components to consider when comparing the cost of in-house and outsourced options:
- Voice over Internet Protocol (VoIP) services
- VoIP network per-minute charges for local, long-distance, and toll-free usage
- Dedicated internet access and mobile internet agreements
- Data storage
Why Outsourcing to Mexico Is a Smart Business Move
Mexico is a popular destination for nearshore outsourcing to streamline business operations and gain a competitive advantage, as outlined in a nearshore outsourcing guide. Partnering with BPO providers in Mexico allows client companies to unlock their full potential. It also gives them access to various cost-saving benefits while leveraging the country’s skilled labor force.
The country is home to thousands of outsourcing experts. Working with Mexican BPO companies enables clients to utilize resources, knowledge, and industry-specific expertise otherwise unavailable in-house.
Apart from the cost-effective benefits, here are the nearshore outsourcing examples and other reasons why nearshore outsourcing to Mexico makes sense:
Proximity to the U.S.
Mexico is situated just south of the United States and accessible via land, sea, or air transportation. Its geographical proximity to the U.S. is part of the reason it is a go-to outsourcing destination.
The time difference between Mexico and the U.S. is minimal, so internal and external teams can have overlaps in office hours, improving collaboration. With just a short flight, client companies can visit their BPO partners for face-to-face meetings and inspections. The heightened level of oversight and engagement guarantees that work is completed as expected.
Skilled Workforce
Mexico produces thousands of skilled professionals across different industries. Its labor force is popular for its reliability, talent, and professional service delivery. The country’s lower labor costs do not equate to compromised quality or poor service.
Mexico’s affordable cost of living allows it to offer economical BPO services. It also has a big and established outsourcing industry that can handle different functions, from data entry and customer service to software development.
Lastly, Mexico is home to bilingual professionals fluent in English and Spanish. Depending on your BPO provider, they can show you the English proficiency levels of each candidate they recommend so that you can find someone that best suits your needs.
Better Employment Terms
Nearshore outsourcing to Mexico enables small and medium-sized businesses to tailor working contracts to their needs. This is advantageous when it comes to office hours since clients are not restricted to the regular business schedule. Instead, they can use the “follow the sun” method to operate 24/7.
Lastly, Mexican workers know from experience and investment in continuous personal development programs how to collaborate with companies in the U.S. You can expect the same levels of commitment and professionalism from them as from in-house staff.
The Bottom Line
Getting a more accurate calculation of costs to operate in-house is a good place to start when comparing prices. Once you have done the math, you see that nearshore outsourcing to Mexico is a more cost-effective option than in-house.
From cost savings to a skilled labor force and geographical proximity to the U.S., Mexico makes for an ideal outsourcing destination.
If you are interested in exploring nearshore solutions, let’s connect!
