The complications of initiating operations in a foreign country with different laws, languages and customs can sometimes lead companies or even service providers to lose sight of their core business. This has created opportunities in the nearshore market for local firms to specialize in handling all of the legal and logistical chores to reduce their clients’ exposure to risk and enable them to focus solely on their core business.
One company that provides these services is Intugo, a firm founded in Hermosillo in north-western Mexico in 2005. Intugo started operations two years later and has been developing its business model ever since, founder and VP of Business Development Arturo Rodriguez told Nearshore Americas. Intugo predominantly helps international companies to set up and run their operations in Mexico, although it does sometimes work with Mexican companies too, he said.
Intugo is one of six similar Mexico-based firms that form the Offshore Group, a Tucson, Arizona-headquartered organization that was founded in 1986. The group employs a combined total of just over 17,000 staff to work for its different clients, Rodriguez explained. “At Intugo we have operations in Hermosillo and Ciudad Obregon, here in Sonora, and in Guadalajara and in Saltillo, Coahuila,” he said. “But since we are part of the group we are also able to locate people in Guaymas, Sonora, and we’re just about to establish a presence in Leon, Guanajuato”
Intugo is “the biggest and longest-running company of its kind in Mexico,” Rodriguez claimed. “We usually serve companies that want to do contact center and other BPO operations, or IT operations such as software development, programming and tech support.” Intugo has almost 20 customers, while the entire Offshore Group has close to 80 clients, including a few Fortune 500 companies and some very small companies. “By definition, our relationship with our clients is a long-term relationship. We have clients who have been with the group for over 10 or 15 years,” Rodriguez said. Intugo’s employees include “people in 42 different positions working for foreign clients, including accountants, software developers, call center agents and quality control people, etc.” he added.
Doing the Hard Work for You
The biggest challenges for foreign firms that want to operate in Mexico are “getting to know the local customs and the local way of doing business” and maintaining “the right level of productivity,” Rodriguez said. While massive corporations like HP or Google may be able to overcome such challenges because of the level of resources at their disposal, Intugo targets medium-sized companies and even some very small firms who need a bit more help in adapting to their new environment.
“What we do is help those mid-sized companies to set up and run an operation in Mexico as if they were a Fortune 500 company. We know the market and we have the capability to recruit the right people and advise you on what to do and what not to do,” he explained.
“There’s always something that we can help you do better in Mexico,” Rodriguez added. “Let’s say you want to set up a BPO operation here, we’ll help you with everything you need for you to have the operation up and running but we’ll leave you in control of the operation. It will always be your operation; you just won’t have to deal with everything that’s needed around your core business.”
This means that Intugo provides the facility and the necessary technology, sets up the workstations, recruits the people, handles the legal issues, manages and maintains the building and provides the security for the building. It also takes care of taxes and the payroll as well as handling all of the minor details like cleaning the office and making sure that everything is working fine. Moreover, Intugo is a bi-national company, meaning that customers have extra security because they are in effect signing a contract with a U.S. company, Rodriguez added.
Nearshore Delivery Solutions
While Intugo and the Offshore Group are well established, other newer organizations are also springing up to provide similar services. Luis Derechin, a prominent entrepreneur in IT and finance, founded Nearshore Delivery Solutions (NDS) about a year ago to make it easier for global IT service providers to establish and maintain their own virtual captive delivery centers in Mexico.
“We were traveling the world and we came to the conclusion that rather than competing with the service providers that are out there, if we could find a way to partner with the established players, give them the benefits that they look for from Mexico, and take away the risk, then that would be a win-win, and fortunately we were able to find such a model,” Derechin told Nearshore Americas. The aim is “for them to be able to leverage the geographical advantages and the cost benefits that Mexico offers, without having to deal with the uncertain aspects of a new market, such as: rules, laws and regulations that are foreign to them, and to make them feel comfortable.”
NDS started out with fewer than a dozen employees, Derechin said, but today, “We have hundreds of people who are part of our organization, but who are assigned and dedicated to working for our customers.” The company has about a dozen clients, including “some very large worldwide service providers” from Asia, Europe and the United States, Derechin said. Some projects involve as many as 250 people, while others are significantly smaller. Although currently only operating in Mexico, NDS is planning to initiate operations in Colombia and Peru by the end of the year and is also looking at working in Argentina through a partner.
Not knowing rules, regulations and laws are among the chief risks for those new to the nearshore market, Derechin said. “Having a company or a set of individuals that come into Mexico not understanding the market or laws and thinking that they can service their customers is a huge risk.” On the other hand, “if companies try to come into Mexico and try to dominate all sorts of legal, physical and country-specific risks, they stand the chance of losing focus on their core business, so one way or another, any expansion into a new country entails expansion risks. If we can do away with these additional risks and let people focus only on the delivery risks – which is the one that they typically dominate because it’s their core business – then we find it to be a win-win.”
Sheltered Virtual Captives
“The model that we typically offer is called the ‘sheltered virtual captive,’ which is one where the companies don’t typically set up in Mexico,” Derechin explained. “We usually end up signing an agreement in the U.S. whereby they in essence task us with establishing their operations center in Mexico. We do everything they need for them and because they don’t have a presence in Mexico we’re in charge of setting-up and managing their operations in Mexico while they are in charge of all aspects of delivery and quality. We are involved in most aspects because we’re going to end up taking responsibility for them.”
Naturally, assuming all of their clients’ legal and tax obligations does present NDS with a certain level of risk. “Even though NDS has only been around for about a year we’re part of a much bigger group of companies that have been providing these kinds of services for close to a decade. So there’s vast experience and a lot of people working to support our customers and make sure that all country and operational risks are mitigated,” Derechin said. “We take on these types of risks because we know we can mitigate and deal with them.”
When new clients come to Mexico, NDS’ first task is to provide them with is a “soft landing”. This means “helping them to decide what city they should be in, helping them find office space and everything related to talent acquisition and HR support. It’s not that we perform all of the services ourselves; we oversee and integrate some of the services – we put them in front of real estate experts and other people who are subject matter experts in order for them to be able to come to the best decision about how to start in Mexico.” Derechin added, “We’re experts from the human resources standpoint. The services that we provide directly are talent acquisition, staffing and payroll processing.”
But the partnership does not end once clients are up-and-running. “We’re looking to establish long-term relationships with our customers/partners. Our outlook is that by doing our job correctly and letting them focus on delivery instead of all the stuff that has to happen to mitigate country-specific risks, then in reality it could be an ongoing relationship,” Derechin explained. “We work differently and believe in long term partnerships, as an example any candidate that we bring on and assign, we give 100% guarantee for lifetime. Therefore, if someone doesn’t work out after say nine months, we replace that person without any additional charge.”