The Mexican government has big plans in mind for nearshoring in the country, but they could run afoul due to a poor performance in English skills.
Mexico’s Ministry of Finance and the Inter-American Development Bank (IDB) announced in early July a US$200 million line of credit for nearshoring projects aimed at building manufacturing capacity and easing supply chain hurdles. The projects are expected to be focused in the country’s South-Southeastern region, with special interest in the Tehuantepec isthmus corridor.
Though the projects have yet to be chosen, the IDB said it expects to provide funds for the relocation of “anchor companies”, hoping the rising tide of business will lift small and mid-size enterprises (SMEs) too.
Richard Martínez, the IDB’s VP of Countries, mentioned in a statement to NSAM that the organism sees “enormous opportunities [for Mexico] linked to the global supply chain” in industries such as automotive, agribusiness, airspace, medical devices and electronics.
#México es uno de los países con + potencial de #Nearshoring en la región. Nuestro Vpdte. Richard Martínez anunció, junto al Subsecretario @GabrielYorio, @NafinOficial y @SE_mx, nuestro apoyo a una mayor inserción del país en las cadenas globales de valor https://t.co/cuLTiBFWHD pic.twitter.com/5p8hiDLSBZ
— Banco Interamericano de Desarrollo (@el_BID) July 7, 2022
Industry experts remain optimistic about what the plan could mean for the country as a destination for the outsourcing of business processes (BPO) and IT services (ITO). Given the socio-economic and competency profile of Mexico’s Southern regions, the nearshoring projects might end up benefiting BPO more than ITO, said Francisco Medina, General Director of Jalisco’s State Council for Science and Technology (Coecytjal).
“I believe that their vision [from the federal government] is supporting the creation of call centers or BPO centers, considering the number of jobs that could be generated,” commented Medina in an interview.
Guadalupe Torres, Guadalajara Center Head at Persistent Systems Mexico, had her doubts about how much manufacturing could help ITO or BPO. Nevertheless, she conceded there’s potential in projects from other areas. “I find it difficult for manufacturing, but for agribussiness, definitely. Technification of any area will generate [demand] for IT services and, potentially, call centers,” she said.
Nevertheless, the development of BPO/ITO services out of the government’s nearshoring project could crash headfirst into a wall that has been causing trouble for Mexican businesses and their nearshore partners for some time: poor English skills.
Mexico was ranked 92 out of 112 in the latest EF English Proficiency Index, finding itself not only among the lowest ranked in the world, but also in Latin America. Its score has declined 69 points since 2011, and the fall has been consistent since 2017, a fact that EF found “worthy of attention and investment”.
“Without English, there’s no successful nearshoring”— Guadalupe Torrres, Guadalajara Center Head at Persistent Systems Mexico
Industry experts debate the country’s actual ranking in English proficiency compared to other Nearshore destinations. Even then, they recognize that language is a problem.
“The challenge here will be that graduates have strong English skills. Without English, there’s no successful nearshoring,” Torres pointed out. “We can reshore, strengthen and incentivise, but we need those two things: skill development and bilingual talent.”
“There’s virtually no talent with formation [in the south], and very few people have a good enough hold of English,” added Medina. “Although the BPO industry is strong here [in Mexico], they still have trouble with the language”.
Mexico has managed to remain among the top nearshoring destinations for BPO en Latin America in spite of its low performance in English skills. Nevertheless, other countries in the region are pushing hard to increase their levels of English proficiency. Colombia and Costa Rica have programas at a national level for English education. In Mexico, when such programs exist, they are state-level initiatives, like in Mexico City.
Talent quality and availability has risen as the main driver of Nearshore site location. When evaluating talent for BPO, English proficiency is among the main skills that potential customers hunt for.
Mixed Feelings in Tech
Tech experts and entrepreneurs have mixed feelings regarding the federal government’s plans for nearshoring. On one hand, they expect to take advantage of new customers in need of digitalization and IT services; on the other, they, once more, feel ignored.
“Of course. We would have a wider customer base”, said Vanessa Burgos, General Director of Yucatan’s Science and Technology Park. “Companies established in the state [of Yucatan] could service that market. They could even attend the demand for human capital that isn’t being provided in the region with talent of their own.”
“They [the south] don’t have the quantity and quality of talent required. They’ll have to build alliances with states like ours”— Francisco Medina, General Director at Coecytjal
IT talent and staff augmentation firms might be the ones that benefit most from the arrival of anchor companies to Mexico’s south. Tech clusters can be found distributed throughout the country, but there’s a stronger concentration of them in the central and northern regions. With the exception of Yucatan, tech presence is poor in the south.
“They [the south] don’t have the quantity and quality of [tech] talent required. They’ll have to build alliances with states like ours, which do have those capacities”, commented Medina.
Not everyone is convinced, though. Tristán Martínez, General Director at Mexico City-based tech firm Alset, expressed mild hope for his company, but wasn’t entirely sold on the nearshoring plan.
“I would like to believe that, if more anchor companies land here, they would be needing help when it comes to tax filing processes and that sort of thing,” he said.“That could benefit tech companies. Probably”.
“We would prefer that human capital be generated here and that it remains in the state, and that companies come here”— Vanessa Burgos, General Director of Yucatan’s Science and Technology Park
When asked about direct support for Mexico’s IT industry, Richard Martínez brought up the possibility of providing more funds for talent development programs anchored on tech giants such as Microsoft.
“We could leverage our collaboration with Microsoft in the Digital Skills program to strengthen the digital capabilities of talent and contribute to their development, working with high-school level institutions and adapting the supply of training programs to the necessities of companies that are installed in the Corridor [of Tehuantepec],” he stated.
Hope Dies Last
The responses from Mexico’s IT sector, ranging from optimism to reserved hope, reflect a do-it-yourself attitude that has grown stronger and prouder in the industry over the past couple years, as it managed to expand in spite of being virtually abandoned by federal authorities.
Federal support for the industry dried up with the beginning of president Andrés Manuel López Obrador’s administration. Funds for the Ministry of Economy’s program of science and tech innovation fell from 193.69 million pesos in 2018 to 157.94 million pesos in 2022. At the National Council for Science and Technology (known as Conacyt), the budget for its program to link science and tech development with the public, private and academic sectors fell from 1.58 billion pesos in 2018 to 1.26 billion pesos in 2022.
“For the federal government, technology means mostly manufacturing. That explains the budget cuts for research,” explained Torres. “I don’t think we’ll see IT investment [from the federal government], but hope dies last.”
While they might take advantage of federal nearshoring projects for other industries, the country’s tech entrepreneurs and investment promoters at a state level would rather have those funds flowing directly towards their coffers.
“We would prefer that human capital be generated here and that it remains in the state, and that companies come here,” said Burgos. “If we manage to draw these sorts of projects, it would be very useful for pushing nearshore investment. If they [BID and the federal government] turn an eye towards the state, we would definitely make the best out of that chance, because we’ve been putting in the work.”