Nearshore Americas

Why the Mexico-USA Nearshore Relationship Continues to Bloom

Historically, the trade relationship between the United States and Latin America – and specifically Mexico – has focused on manufactured goods. However, over the past few decades, there has been a shift, with more emphasis on services. The trend isn’t going away. In fact, it’s growing, and the talent pool increasing every year.

“Many countries in Latin America have been producing quality software engineers since the early nineties,” Miguel Hernandez, COO of ParallelStaff, a San Francisco-headquartered Staff Augmentation and IT Managed Services company explained. “That results in a critical workforce that can cope with the ever-evolving need to produce software as a service in the U.S.”

In this context, Mexico has a unique story to tell. In the early 20th century, Mexico’s economy was dominated by agriculture. That began to change after the Second World War when the country began to produce more technical professionals and engineers.

“In addition to that, a lot of technological infrastructure was put in place during the 1960s and the 1970s,” said Hernandez. “As a result, the GDP grew, and oil exports, as well as manufacturing, began to dominate the economy.”

1.5 million U.S. citizens live in Mexico, and Mexico is the top foreign destination for American travelers

Mexico’s Generation X, born in the late 1970s and early 1980s, were exposed to personal computing and many students received an education in computer science and information technology.  That trend, which ramped up in the 1990s, created within the population a critical mass of well-educated people.

“That alone started the shift towards offering services,” said Hernandez. “Particularly for software development services.”

Trade – the Key to Mutual Prosperity

The border between Mexico and the United States is 2,000 miles long, with 55 active land access points. Bilateral relations between the two have a direct impact on millions of Americans, with the scope of such relations going well beyond the diplomatic and the governmental.

“Two-way trade between the countries is $1.7 billion a day,” said Hernandez. “During normal and healthy times, hundreds of thousands of people cross the border legally each day. Additionally, 1.5 million U.S. citizens live in Mexico, and Mexico is the top foreign destination for American travelers.”

Clearly, the two countries share a vital and robust commercial relationship. Nearshoring Staff Augmentation can benefit from this, given that it covers the need for lower-cost yet qualified software developers for U.S. businesses.

“There are countless areas in which U.S. companies can benefit from using the Nearshoring software development model,” Hernandez said. “These include, but are not limited to, banking and investments, education, citizen security, innovation, entrepreneurship, energy, and public health. As well, our latest observations at ParallelStaff indicate that e-commerce and on-line stores are the main growth areas, with much of this due to the pandemic.”

Careers in Nearshore Software Development

When doing freelance work, English-speaking Mexican software developers tend to apply for software development positions because they earn in dollars. However, there is a risk that they might not grow professionally, or find stability.

“Nearshoring companies allow these developers to find such stability, and sometimes they pay them in dollars, too,” Hernandez said. “When software developers realize they can have a career with a Nearshoring company, they normally see it as the best choice.”

Those Mexican companies that conduct business with U.S. organizations recognize the importance of delivering services to an international standard, with an emphasis on quality, because this is the only way to compete in the U.S. market. The challenge, however, is that many American companies don’t know how to begin a relationship with a Mexican provider.

“There are countless areas in which U.S. companies can benefit from using the Nearshoring software development model,” said Hernandez.

“U.S. companies usually go with what’s familiar to them, and often that’s offshoring,” said Hernandez. “As a result, they can overlook the benefits of Nearshoring. However, this is changing. In 2021, even former offshoring firms are getting more deals with existing Nearshoring companies. I think it is only a matter of time before Nearshoring becomes the rule of thumb.”

For those companies offering Nearshore solutions from Mexico, having a legal U.S. entity is becoming more common, as it facilitates the overall engagement between parties. It also makes it easier to pay taxes to the American government.

The Nearshore Advantage

In recent years, China has become a major player in world trade, including in the provision of offshore services. However, the geographic challenges of dealing with Asia can present serious challenges when it comes to software development.

“Engaging your in-house development team with another that is asleep, while yours is awake – and vice versa – rarely works with software development,” said Hernandez. “What you get in terms of cheaper rates, you lose in communication and cultural affinity.”

Using China for software development can be more expensive in the long run, Hernandez said. As well, China has not signed any trade agreements with the countries of the North American Free Trade Agreement (NAFTA).

Outsourcing to China means lost cultural affinity, Hernandez explained. 

“Conversely, the economic and trade relationship with Mexico is of interest to U.S. policymakers,” said Hernandez. “This is because of Mexico’s proximity to the United States, the extensive trade and investment relationship under NAFTA, the conclusion of the NAFTA renegotiations and the U.S.-Mexico-Canada Agreement (USMCA), as well as the strong cultural and economic ties that connect the two countries.”

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It also must be said that it is United States’ national interest to have a prosperous and democratic Mexico as a neighbor. Mexico is the United States’ third-largest trading partner, while the United States is, by far, Mexico’s largest trading partner.

“In 2019, Mexico surpassed China as the United States’ largest trading partner,” said Hernandez. “It ranks second, after China, as a source of U.S. imports, and second, after Canada, as an export market for U.S. goods and services. The United States is also the largest source of foreign direct investment in Mexico.”

An Unprecedented Time

The entire world is going through an unprecedented scenario, wherein COVID-19 has changed the global economic landscape. As well, the United States has experienced unseen political turmoil. Many people are confused, and living in uncertain times.

“Even the state of Texas has experienced climatic events in February that have left us all wondering how fragile the economy can be for any state or country,” said Hernandez. “Yet, within the crisis, there is always an opportunity, and more than ever it is being proven that remote jobs are functional.”

This has resulted in Nearshore proving its mettle. Businesses in Canada and the United States now know that the technological infrastructure supports working from home. However, while working from home can reduce overhead costs, sourcing in the US or Canada for software development is still dramatically more expensive than in Mexico – with no significant difference in quality.

“Nearshore relies on remote jobs,” explained Hernandez. “When there is faith in the ability of the developers, their determination and creativity ensure that the job gets done

Parallel Staff

Parallel Staff is a Nearshore outsourcing supplier focused on IT staff augmentation and IT managed services. You can contact the company's Chief Operating Officer Miguel Hernandez here.

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