COUNTRY PROFILE: A More Mature Mexico Develops a Bigger Vision

By Suvradeep Bhattacharjee, NSAM Contributor
The rise of Mexico as an sourcing destination should come as no surprise, but the next few years will determine whether the country has the right vision and the right strategies to cultivate new sourcing centers in under-developed, but potentially fertile BPO pockets.
The good news is Mexico continues to  ride the wave of Hispanic growth in the US. Outsourcing in Mexico is driven by one huge factor: the majority of the Hispanic population in US feels quite comfortable when they hear a Mexican accent. Almost 15% of  the US population is Hispanic. More than 64% of the Hispanics in the US are of Mexican origin. This power of sheer numbers is amplified by a feeling of nostalgia among the Mexican Americans towards their ancestral land.

“We’re making strong strides in IT outsourcing,”  – Jorge Zavala, TechBA Silicon Valley

Sub-Sourcing into Guatemala
Outsourcing in Mexico has reached a point of maturity where Mexico has started to use Guatemala as a nearshore location for its domestic Spanish-only calls. That sentiment is hear from Gustavo de la Peña , of Unifica Teleservices, a subsidiary of Marcatel, which is one of the leading telecom providers in Mexico. “We’ve started using Guatemala for domestic calls as it is almost 50% cheaper than here in Monterrey,” de la Peña said.
Ready for KPO?

Mexico is well poised to handle more complex outsourcing services. The country already has a booming contact center/ BPO industry with global players such as Teleperformance, Atento, TeleTech, Sitel co-habitating with strong local players such as Telvista, Axtel, b-connect, Konexo, Capta, Sertec and Unifica Teleservices.
With the strong emergence of Central America in the BPO space, Mexico has a tremendous opportunity to deliver more complex BPO services using the service bandwidth of emerging central American countries for simpler processes and its own internal resources for complex ones.

Major US Companies Outsourcing in Mexico

Sprint: Business lines: Telecom and ISP Services outsourced: Customer acquisition, customer care & growth, technical support, debt collection

AT&T: Business lines: Wireless Services outsourced: Customer care, account & billing support

Microsoft: Business lines: Xbox Services outsourced: Customer care, technical support

HP:Business lines: Personal Computer, Services outsourced: Customer care, technical support (level-1 and level-2), debt collection

First Data: Business lines: Banking, Services outsourced: Customer acquisition, customer care, debt collection

U.S. Airways: Business lines: Airline, Services outsourced: Lost & found baggage related services, customer care

Best Western Hotels: Business lines: Reservations.  Services outsourced: Customer support, bookings

Why  Mexico?
Mexico has four distinct advantages as a nearshore location for the North American market.

• Cultural affinity
• Geographical proximity: it takes 2.5 hours from Dallas (Texas), 4 hours from New York and about  3.5 hours from Los Angeles to reach Mexico City
• Highly educated workforce: Mexico boasts to have some of the best universities in Latin America
• Cost savings: potential cost savings of 40-50% for most types of nearshore services such as customer care and technical support

ITO in Mexico
“We’re making strong strides in IT Outsourcing,”  says Jorge Zavala, CEO of TechBA Silicon Valley. TechBA is a program created by Mexican Economic Ministry to identify and accelerate technological innovation in Mexico.  Mexico offers strong capabilities in Remote Infrastructure Management (RIM) and Mexican companies such as Scitum, based in Guadalajara are exploiting the fact that Mexico being part of NAFTA. This helps them to get an edge over other competing countries in terms of security issues in RIM.
BPO in Mexico
“Mexico has enviable human capital with respect to BPO services such as contact center”, according to Esteban Arce Riqué, Director de Foros, IMT (Instituto Mexicano de Teleservicios). IMT is Mexico’s leading industry body for contact centers.
More than 80,000 engineering students graduate every year, says  Zavala and many of them are available as Mexico still has quite high unemployment level. And, there is active support from the Mexican government. “Huge government incentives to set up contact centers may touch all the right buttons with the contact center outsourcers and in-house shared services organizations,” says Arce. Some of the state governments in Mexico offers variety of incentives such as:

• No corporate tax up to 5 years
• Government paying up to 50% of setup costs involved in network hub and workstation installations.

Some of the states such as Querétaro are actively encouraging contact center/BPO companies to establish offices in their states.
Emergence of Tier-2 Cities: Querétaro, Chihuahua, Hermosillo and Cualiacán
No wonder many contact center/BPO companies are moving from Mexico City to Querétaro. Major players  such as Impulse Telecommunications de México, Call Fast, Bufete Juridico Pazos Chávez S.C., EDS (HP) and Soluciones Telefónicas de Occidente have offices in Querétaro.
But, Monterrey continues to be the favourite destination among the major outsourcing players in Mexico. “Monterrey is simply a good place to do business,”  says Beatriz Sotres, HR Corporate Manager of Teleperformance Nearshore. Beatriz probably has a point as many other studies, including the one conducted by América Economía, have asserted that Monterrey is one of the best places to do business in Mexico as well as Latin America.
Beatriz says, “Staff salaries are lower, US is near and lot of well-educated people are looking for work therefore we can choose who we hire.” This probably sums up why Mexico is an attractive destination for many US companies.
There is a trend among bigger BPO players also to move from prime cities such as Monterrey and Mexico City to smaller cities such as Chihuahua, Hermosillo and Cualiacán. Apart from the higher state incentives, employee attrition is also driving this trend. Again, this is a sign of maturity for the Mexican outsourcing industry as it is creating its own ‘Tier-1’ and ‘Tier-2’ cities as India did couple of years back when outsourcing companies moved some processes from Bangalore and Mumbai to Pune and Hyderabad.
Drug-economy: Beginning of the End?
Any article on Mexico is probably a bit incomplete now without a narrative on the law and order situation. Violence related to drug-trafficking has erupted recently in many cities including Monterrey and Mexico City. “Drug violence has started because current Mexican government is now taking tough measures against the drug traffickers,” says Arce. Such a scenario, in the long run, might loosen the grip of the drug-barons on Mexico’s resources including human resources and make them available for other form of commercial activities .

Mexico: Some Key Facts

GDP (purchasing power parity): c. $1.6 trillion (2008 est.)

Country comparison to the world: 12

GDP – real growth rate: 1.3% (2008 est.)

Country comparison to the world: 170

3.3% (2007 est.)

5.1% (2006 est.)

GDP – per capita (PPP): $14,300 (2008 est.)

Country comparison to the world: 79

$14,200 (2007 est.)

$13,900 (2006 est.)

GDP by sector:

Agriculture: 3.8%

Industry: 35.2%

Services: 61% (2008 est.)

Labor force:  c. 45.3 million (2008 est.)

Country comparison to the world: 13

Labor force – by occupation:

Agriculture: 15.1%

Industry: 25.7%

Services: 59% (2005)

Unemployment rate:    4% (2008 est.)

Country comparison to the world: 47

3.7% (2007 est.)

note: underemployment is perhaps 25%

Inflation rate (consumer prices): 5.1% (2008 est.)

Country comparison to the world: 87

4% (2007 est.)

Commercial bank prime lending rate: 8.71% (31 December 2008)

Country comparison to the world: 114

7.56% (31 December 2007)

Telephones – main lines in use:  c. 20.5 million (2008)

Country comparison to the world: 14

Telephones – mobile cellular: 75.3 million (2008)

Country comparison to the world: 12

Internet hosts:  12.716 million (2009)

Country comparison to the world: 8

Internet users: 23.26 million (2008)

Country comparison to the world: 16

(Source: The World Fact Book, CIA)

Suvradeep Bhattacharjee has more than 12 years experience in the BPO/ITO industry in leading industry research, advising senior executives and developing outsourcing service offerings. Suvradeep’s global business experience includes working in U.S. , Brazil , U.K. , Germany , Cyprus and India Suvradeep has deep expertise in BPO market opportunity assessment, delivery location analysis, KPO, Business Intelligence, CRM and billing systems. Contact: BPOpronet or email: suvradeep.bhattacharjee@bpopronet.com