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The demand for high-quality talent still outstrips supply. This unequal supply and demand means workers, especially those in developed nations, require higher wages. Hence, having an in-house team can be cost-limiting for businesses.
Outsourcing to Mexico is an affordable solution to leverage top talent and professional service. Customer service agents, software developers, data entry clerks, and virtual assistants (VAs) in Mexico take service delivery as seriously as workers in the U.S., making the country an attractive business process outsourcing (BPO) destination.
Let us explore the BPO industry in Mexico, its current status, challenges, and future.
Current Status of the BPO Industry in Mexico
To start, what is business process outsourcing? It involves contracting specific business processes or entire departments to a third party that can manage and oversee the functions more efficiently.
Mexico has become an increasingly popular outsourcing location, attracting global companies with its affordable solutions and skilled workforce. With a strong emphasis on software development, information technology (IT), and manufacturing, the country is a growing contender in the BPO market against legacy giants such as the Philippines and India.
The BPO industry in Mexico had a total revenue of $2.3 billion in 2020. This figure shows a rising trend among U.S. businesses to explore nearshore outsourcing solutions in Mexico. Various American companies outsource to Mexico, including Curtiss-Wright, Honeywell, Medtronic, and Molex.
Here is an overview of the BPO industry in Mexico.
| Mexico in Brief | |
|---|---|
| Capital | Mexico City |
| Language | Mostly Spanish, with more than 13% of the population speaking English |
| Population | 130.3 million |
| Currency | Mexican Peso |
| Time zones | UTC-5, UTC-6, UTC-7, UTC-8 |
| Business climate | A4 |
| Talent pool | 176,000 BPO workers as of 2021, more than 700,000 developers |
Top Outsourced Industries in Mexico
Mexico’s competitive pricing and highly skilled labor force allowed it to stand out in various sectors, making it a viable outsourcing location. The top three commonly outsourced sectors in Mexico are:
- Manufacturing. The manufacturing sector has a presence in industries such as aerospace, aviation, automobiles, garments and textiles, consumer products, and medical devices. Companies choose Mexico due to its competitive labor costs, strategic location, and infrastructure investment.
- Back office. The BPO industry in Mexico covers many back-office functions, including data entry services, human resources, and finance, which continue to grow rapidly.
- IT. Mexico’s IT industry is the largest in Latin America (LATAM), with the cities of Monterrey and Guadalajara known as the “Silicon Valley of Latin America.” Mexico is LATAM’s biggest mobile app market, with app downloads growing to 30% in 2021. The country is also known for high-quality tech support outsourcing solutions.
Salary Landscape and Cost Savings
Salaries in Mexico depend on location, education level, and job title. High-paying positions include software engineers, IT managers, and financial analysts, while lower-paying roles include customer service agents and data entry clerks.
Outsourcing to Mexico has been shown to reduce overhead by 10% to 30% due to its affordable labor costs. Here are the average monthly wages per employee.
| Position | Monthly Wage |
|---|---|
| Basic field operator | $280 |
| Semi-skilled operator | $480 |
| Skilled operator | $456 |
| Team leader | $560 |
| Production supervisor | $1440 |
| QA engineer | $2240 |
| Production engineer | $2240 |
| Plant manager | $6000 |
Conversely, the average salary of a software developer in Mexico is $362,758 per year.
Diverse Labor Availability and Productivity
The BPO industry in Mexico offers a large pool of highly educated and motivated personnel at affordable costs. The country produces as many STEM graduates as the U.S. and is among the top computer science graduates, with over 130,000 graduates annually. Mexico also built 140 tuition-free universities to create a talent pipeline to support the tech sector.
The government and non-profit organizations also led initiatives such as Code GDL, encouraging schoolchildren to learn Java, CSS, and other programming languages. The country proudly stands alongside other Organization for Economic Co-operation and Development (OECD) nations to churn out computing and technology graduates.
Mexico also has a more productive 48-hour work week (before overtime is required) than the 40 work hours in the U.S. The labor rate is an even better value when considering the overall operating costs. Due to the lower cost of living in the country, the labor rate is a win-win for BPO workers and clients.
Mature Location and Infrastructure
The Mexican government and private organizations have heavily invested in IT and business parks in recent years. They are actively working to transform the nation into the creative digital hub of Latin America.
Various parks, such as the Apodaca Technology Park, Guadalajara Software Center, and Monterrey Technology Park, have been opened since 2013 with offices and facilities comparable to any U.S. business park. Ongoing private and public investments in workspaces and IT parks for BPO companies are growing as the demand for talent continues to rise.
Take Guadalajara as an example. The city is considered Mexico’s “Silicon Valley” and has a thriving 115,000-person tech labor force. Mexico’s talent pool, technology parks, and infrastructure are attracting more global companies looking to outsource nearshore or employ IT teams directly.
Factors Driving the Growth of Mexico’s BPO Industry
According to the analysis of Tech Behemoths, here are the factors that drive the growth of the BPO industry in Mexico:
- Growing demand for nearshoring services. Businesses looking to cut costs while accessing skilled workers will see a significant increase in demand for nearshore outsourcing services in the coming years.
- Better nearshore outsourcing practices. Mexico continuously improves its nearshore outsourcing practices, providing more cost-effective and transparent solutions for global businesses. The government initiated developing the Code of Ethics for the BPO industry centered around protecting intellectual property (IP) rights.
- Improved software development ecosystem. With the skyrocketing demand for nearshore BPO, Mexico will strengthen its software development ecosystem by giving training opportunities to local talent and investing in new infrastructure. The country is also inviting investors and entrepreneurs to create innovative tech products.
- Stronger technology expertise. The increased investment in improved access to training opportunities and the country’s technology infrastructure will drive expertise to the next level. Mexican developers will have access to cutting-edge technologies, letting them develop innovative products that compete with those of other countries.
- Enhanced technological specialization. Mexico will also become more specialized in software development. Mexican developers are highly qualified to take on specialized, niche services. Their clients will notice better service, as few offshore competitors can match Mexico’s highly competitive position in the market.
Front-office and back-office outsourcing offer many benefits for companies, such as access to a skilled labor force and cost savings. However, you must also consider the compliance and legal aspects when outsourcing to Mexico to avoid pitfalls. Beware of the challenges faced by the BPO industry in Mexico that may affect your outsourcing experience.
How the Mexican Labor Law Amendment Affects the BPO Industry
Mexico banned international companies from outsourcing “core business activities” on April 23, 2021. This means businesses cannot outsource activities that are part of their main economic activity.
The law addresses a pressing issue in the country’s economy: corporate avoidance of tax obligations. Here is a breakdown of what the amendment means.
What the 2021 Amendment Means for Businesses
Understand that the law amendment does not ban outsourcing a business’s non-core functions to Mexico. These business processes are not directly linked to producing the product or service of a private company. Instead, it includes back-end processes such as contact center as a service (CCaaS), data processing, human resources, and supply chain management.
However, the Mexican government has yet to fully define what business activities are “core” and “non-core.” This creates ambiguity about how the new amendment will impact the staffing of skilled specialists.
Obligations Under the New Amendment
The labor law amendment outlines obligations for the “subcontracting or outsourcing company” and the “beneficiary.” For instance, if you own a company in the U.S. that outsources IT functions to Mexico, you are both the employer and the “beneficiary.” Your IT provider is the “subcontracting company.”
Here are some key obligations you must fulfill as the beneficiary:
- Ensure the BPO company is registered with the Ministry of Labor and Social Welfare.
- Check if the outsourcing provider shares a quarterly report with INFONAVIT.
- Collect tax receipts for withholding tax, employer contribution, and employee salary payments from your outsourcing partner.
- Share 10% of your taxable income with workers under profit-sharing obligations.
What Businesses Can Do
Companies planning to outsource non-core functions need not worry about the amendment. However, companies planning to outsource functions related to their corporate purpose can consider a nearshore solution to get around the law reform.
Nearshoring allows companies to shift business operations directly to Mexico instead of contracting work to third parties. If your company is based in the United States, nearshoring in Mexico helps scale the business rapidly.
Outlook for Mexico’s BPO Industry
Many companies choose nearshore outsourcing in Mexico due to the similarities in culture and time zones. But is outsourcing a viable long-term investment in the country?
Read on to see what is ahead for the BPO industry in Mexico.
- End-to-end services. Mexico’s reforms on talent management led to the creation of companies that offer specialized end-to-end services. So, companies that acquire a BPO service need not undergo long bureaucratic processes to be fully active. End-to-end solutions include all they need, including the technologies, talent, and permits required.
- 24/7 support. The past few years have taught us that one cannot overprepare. Hence, top BPO vendors will offer their clients disaster recovery plans (DRPs). This involves having a backup facility where agents can perform their duties during challenging times. Backup facilities mirror primary databases and all the essential resources for a smooth workflow.
- Bilingual talent. The best BPO companies in Mexico assign dedicated bilingual professionals to ensure optimal service. This is a trend that will continue to grow. A company’s bilingual capacity will become the norm instead of a competitive advantage, so companies will prioritize adding bilingual talent to their roster to stay relevant.
This outlook gives businesses all the more reason to outsource to Latin America, particularly Mexico.
The Bottom Line
The nearshore outsourcing industry is on the rise, and this uptrend will continue. Businesses that want affordable outsourcing solutions should definitely consider Mexico among their choices.
With the country’s cultural similarity and proximity to the U.S., strong infrastructure, secure data management, and talented workforce, companies will find Mexico an ideal outsourcing location. Lastly, the factors above make outsourcing in Mexico a secure, competitive market, far from merely a passing trend.
