Political uncertainty is enough to cause disruption to any industry – and the Nearshore sector is no exception. Slow economic growth and the unorthodox style of President Andrés Manuel López Obrador (AMLO) is causing many industry executives to feel uneasy, not knowing how such uncertainty undermines the confidence of US sourcing customers.
Mexico of course firmly holds the position as top ranked Nearshore destination, transacting more exported Nearshore business than its closest rivals, Brazil, Chile, Colombia and Costa Rica. But the growth-oriented, cutting edge savviness of software innovators in Mexico does not match well with the inward-looking populist president who has – so far – declined to leave Mexico on any international trips and seems to have a skeptical view around the value of foreign relationships.
“The IT and BPO industry is currently stuck,” says Jaime Rendón, Co-founder and CEO of Ginnovates, a Mexico City-based business management consulting firm. He says Mexico’s slow economic growth and the lack of government business enthusiasm in innovation, entrepreneurship and new technologies is creating a “volatile situation of uncertainty.”
Rendon adds: “It is not being developed this year as expected because of slow economic growth, uncertainty with the government’s next move and competition elsewhere.
“It’s a perfect storm with the current situation – there’s a lack of new development in the economy and our politicians must improve their envision, planning and execution of things so they can collaborate with companies doing their job to take Mexico to the next level overcoming volatility, uncertainty, complexity and ambiguity including EQ (Emotional Intelligence) strategies.”
Rendón added he knew of at least one company which had pulled its operations out of Mexico because of the uncertainty. He added the threat of competition was high as other companies were looking to other countries – such as Colombia, Argentina, Costa Rica and India further afield – and may look to do things internally.
With AMLO’s seemingly erratic and radical moves have left foreign investors “concerned”, added Rendón. As well as the endless cuts and questionable spending, Carlos Urzúa, the country’s finance minister in July quit his role – just months into AMLO’s term – citing “differences of opinion on economic matters.” AMLO’s different perspective and general turbulence like this, so early on, is not good for foreign investors, says Rendón.
He added that staff turnover was high because of projects being cancelled too and companies are not hiring as much as previously.
“Foreign investors are very concerned about the economic uncertainty that is currently being experienced in the country and in most of the Latin American environments, due to their approaches of just giving away for free, instead of grounding accelerated economic development. That is totally averse to what has been happening in the past.”
An expert in the outsourcing industry, who wished to remain anonymous, also told Nearshore Americas that the country was “stepping into the unknown” with the government of AMLO.
“Are we worried? Maybe a bit more than six years ago but it is more a ‘what is going to happen’ worried than ‘this is happening now’ worried,” he said.
“Confidence is not high right now and the economy is not growing but we will have to wait and see.”
Though others spoke with Nearshore Americas and revealed that the main problems was for companies already working within the country – specifically on government contracts.
With economic growth slow and the peso weak, now might be a good time to set up shop in Mexico, says Marcos Jiminez, Ex-CEO for Softtek USA, a Mexican-based IT and business process solutions company.
“IT is the industry I see growing the most. Labor-wise or market wise Mexico has become cheaper. This time last year it was 18 pesos to a dollar, now it’s 20 pesos – so it’s 10 percent cheaper. Because of the reduction in contracts, labor is available. You don’t see labor costs increasing. If you’re planning on doing some Nearshore for Mexico I think this is the best time to do it.”
While Rodrigo Contreras, Head of Business Development at Sericea Labs and former head of ProMexico in Toronto, added that investors would have to be cautious, but that it was too early to make any rash decisions – and that those who needed to be worried were those working on government contracts.
“There is of course a very important shift in government relations with the business sector,” he told Nearshore Americas.
“The new guys might be hesitant to do so and under their risk analysis they might not decide to do it [come to Mexico] but I would say that seasoned investors are still progressing their businesses in Mexico.
“In the mind of the new investor it could be a concern but an already seasoned investor in the country will be trying to capitalize on the cost benefit Mexico brings to them.”
“I would just keep a cautious eye as an investor for now,” he added.
As for AMLO, one of his most damaging decision was to completely shut down the ProMexico platform, eliminating hundreds of overseas positions where government representatives had been tasked with facilitating investment. As is common in the era of AMLO, no strategy has materialized to replace this platform.