Nearshoring software development to Mexico

Word on the street at the moment is that several of the leading outsourcing vendors are searching for clients who want to develop resources in Central and South America.  This is especially the case for services that require a higher degree of staff interaction and time overlap, for example software development, HR and finance processes.  I’m not unusually one for commercials, but I was sent this cute clip – for a small software development outsourcing firm called Nearsoft  – which comes up with some very compelling arguments for nearshoring software development work to Mexico for Californian businesses; namely that Mexican nearshoring costs on average 65% of the US costs, compared to 85% for Indian costs for software development services.  The principal reasons are as follows:

  • Wages rates are comparable
  • Little need to relocate staff into the US
  • No need for "bridge teams" which spend their time overlapping development work with both onshore and offshore teams
  • Productivity – for every 2 US engineers, 3 Indian engineers are needed to combat staff attrition and less experienced staff
  • Staff travel costs are far lower for nearshore
  • Staff attrition is lower in Mexico
  • IP protection is stronger under the NAFTA laws
  • Staff visas are easier and cheaper to acquire under NAFTA visas.

While many of these points make a lot of sense, Nearsoft overlooks the issue of talent availability in Mexico and other central American locales, which is my number one concern.  Moreover, the productivity issue is debatable.  But there is little doubt the LAT-AM nearshore argument is becoming more and more compelling by the day with an ever-weakening dollar and no slowdown with offshore staff attrition rates.

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5 Comments

  1. Stefan Schmidt
    Posted December 6, 2007 at 4:54 pm | Permalink

    Interesting to see countries like Mexico competing on price and service value with India for outsourcing work. As you mention, their one drawback is supply of labor talent and whether they can take on enterprise work at a higher scale. Will be interesting to see how the trend of the South American nations develops over the next year or two for taking on outsourcing work like application development.

    Stefan

  2. Posted December 6, 2007 at 10:41 pm | Permalink

    Significant amount of resources are wasted by companies in search of the cheapest technical labor force in the world. It comes as no surprise to those in the field, that the US talent market is willing and able to meet the demands, now and in the future, if, IF, US companies were willing to pay for this talent. There is and never has been a shortage of US software developers or software engineers. As Indian workers continue to close the financial gap on their US counterparts, they too, will be looking for work in the near future. My thoughts are not original by any stretch, however, no one wants to hear the truth.

  3. Posted December 7, 2007 at 8:57 am | Permalink

    First of all thanks for the coverage. It’s really appreciated.

    To the question of “talent availability” we’ve grown from 8 to 40 people in the last 10 months and, knock on wood, have had no problems finding qualified people with experience in different languages and platforms. This even in spite of the fact that our pool is more limited because we only hire people who are fluent in English. I’ll add something about this in the next version of the “cute clip.”

    I have to admit that when I started in this business I had the same concerns. I was born in Cuba and knew very little about Mexico, other than the stuff you see on TV and movies here (US). I’ve been pleasantly surprised to find that 1) they have very good schools, and 2) their output of graduates is increasing. We don’t hire new graduates (as a small company, we can’t afford to) but it assures me that the pool won’t be shrinking in the future, even with increased demand.

    cheers — matt

  4. Posted December 9, 2007 at 10:40 am | Permalink

    Nearshoring is not a bad idea, the problems with India’s infrastructure and cultural differences obstructing working practices makes the idea of nearshoring quite appealing.

  5. Posted August 28, 2008 at 6:02 pm | Permalink

    Hi,

    well for us here in Europe “nearshore” mostly means eastern Europe.

    Example:
    PROVINCIA Software in Croatia
    http://www.provincia-software.com
    is a nearshore software company in Europe

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