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Pros & Cons of Outsourcing to Mexico—And 5 Tips for Success

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Business process outsourcing (BPO) is an increasingly popular way for companies to boost their productivity without expanding their in-house workforce. With Mexico being the United States’ neighbor to the south, outsourcing to a specialized service provider there can be a fantastic choice for nearshoring—and a really fantastic overall outsourcing destination in general.

Today, we’ll take a look at Mexico’s journey to becoming a top outsourcing destination, explore the benefits and challenges of doing so, and provide five tips that can help you build a strong outsourcing partnership in Mexico.

How Mexico Became a Top Outsourcing Destination

The outsourcing industry in Mexico dates back to the 1980s when Mexican companies started to provide basic manufacturing services to U.S. companies. Based on that initial success, Mexico began attracting further foreign investments in the ‘90s, specifically in the electronics and automotive sectors.

By the early 2000s, Mexico had emerged as a center for nearshore outsourcing, growing the call center and IT outsourcing industries in Mexico.

In recent years, Mexico has focused its outsourcing development on higher-value services such as engineering, R&D, and software development. There has also been an expansion from the standard call center service to include business processes, including finance, accounting, and human resources.

Overview of the Mexican Outsourcing Market

Mexico has a robust infrastructure and well-developed telecommunications system, making it easy for companies to set up operations and communicate with customers and partners. The country's stable political and economic climate contributes to its growth as a top outsourcing destination. The average salary for Mexican outsourced employees is around $21,000 USD per year, which is lower than in other countries, providing a cost advantage for companies outsourcing to Mexico.

Benefits of Outsourcing to Mexico

U.S.-based companies find Mexico to be an ideal nearshoring outsourcing destination for many reasons including proximity, shared time zones, and standard 48-hour work week. Let’s look at some of the key benefits:

Skilled & Educated Talent Pool

Mexico’s education system makes it an attractive destination for outsourcing. The country has strong public and private schools, with many colleges and universities offering courses in science, technology, engineering, arts, and mathematics (STEAM).

Companies looking to outsource IT, customer service, and manufacturing operations can find a pool of talented and highly-skilled workers who easily meet the needs of businesses.

Beneficial Trade Treaties

Trade treaties and agreements provide businesses with greater access to international markets and help to promote trade and investment. Since 2020, Mexico has been a member of the United States Mexico - Canada Agreement (USMCA). Prior to this, it was part of the North American Free Trade Agreement (NAFTA). Both trade agreements have helped increase trade and investment between the three countries in North America by enacting business-friendly policies, such as tariff eliminations.

These trade agreements have positively impacted the outsourcing market in Mexico, making the country ever more attractive to foreign companies looking to outsource operations.

Reduced Labor Costs

One of the key advantages of outsourcing to Mexico is the lower labor costs compared to those found in other countries. Mexican workers typically earn significantly lower salaries than their counterparts in the United States, which makes outsourcing to Mexico an attractive option for companies looking to reduce costs. As mentioned earlier, recent data shows that the average salary for Mexican outsourced employees is around just $21,000 USD per year.

Companies looking to cut costs and remain competitive in a rapidly changing global marketplace have been attracted to the country's favorable business environment and highly-skilled workforce.

Strong Mexican Infrastructure

Regarding infrastructure, Mexico’s modern transportation network, a mix of roadways, highways, airports, and ports, makes it easier to move goods and people both domestically and internationally. The City of Monterrey in Northeastern Mexico is seen as the country’s "high-tech hub,” and is the home to universities and technical institutes focusing on STEAM learning. The city has a growing ecosystem of startups and innovation centers, driving the development of entrepreneurship and new technologies. Many other cities throughout Mexico, like Tijuana and Mexico City, emulate this through local business development, creation of technology parks and innovation centers, and infrastructure investment.

Across the country, Mexico’s strong telecommunications network boasts modern technology and reliable internet connectivity. This is important for outsourcing companies, as it enables them to communicate easily and efficiently with their outsourcing partners in Mexico.

Proximity to the US

Mexico’s proximity to the United States has made it an attractive outsourcing destination, as it allows for easier communication and transportation of manufactured goods.

Working with nearby partners allows US companies to quickly and easily travel to Mexico to meet with their outsourcing partners, monitor the progress of their projects, and resolve any issues that may arise. This proximity has also made it easier for Mexican outsourcing companies to communicate with their clients in the United States, as time zones and language barriers are not as much of an issue.

Challenges of Outsourcing to Mexico

It is important for companies to seek out experienced advisors when starting to work with outsourced partners, as they can can help you avoid some of the challenges that commonly arise when outsourcing. Better yet, the right outsourcing advisor can help you and your new partner agree on processes that should be followed if any of these challenges do occur.

Legal and Regulatory Requirements

Doing business in another country can sometimes involve navigating different legal and regulatory requirements than what you’re used to here at home - and Mexico is no different. This can include differences in labor laws, tax codes, and health and safety regulations.

For example, Mexican labor laws can be more restrictive than those in other countries. Mexican law requires companies to provide employees with a certain amount of paid time off; to contribute to social security and pension funds; and to follow other rules and regulations that can add to the cost of doing business.

In addition, foreign countries must also be aware of Mexican tax codes, which can be more complicated than those in other countries. They must also be aware of Mexican health and safety regulations, which can be more stringent than those in other countries. For example, Mexican worksites must provide more safety equipment and extensive training. Mexican environmental regulations are generally stricter than the US, especially in manufacturing and waste remediation.

Navigating Cultural Differences

Mexican culture is distinct from that of other countries and has its own set of norms, values, and beliefs. Understanding and respecting these cultural differences can be crucial to building successful business relationships in Mexico. For example, building personal relationships and establishing trust is often more important in Mexican business culture than it is in other countries. Mexican workers often value face-to-face communication and may take time to build personal relationships before doing business.

In addition, punctuality and time management may also be different in Mexico. For example, meetings may start later or end later than expected, and decisions may take longer to be made. There are also differences in language and communication styles. English may not be widely spoken in some parts of Mexico, and even when it is, the language may be used differently than it is in other countries throughout Latin America.

To ensure cultural differences are honored, many companies invest in cross-cultural training, seeking out experienced cultural advisors, and building relationships with local organizations and community leaders.

Dependence on Others

Depending on another company can pose several risks to a company, such as loss of direct control over critical business processes and work quality. As in any business partnership, there is a certain level of risk involved in disclosing confidential information and intellectual property.

And while you’ll of course have someone on your team dedicated to managing your outsourced relationship, you’ll also have an outsourced director or manager in Mexico managing the team there. It’s critical to find the right outsourced manager partner—one who understands your vision and goals—as you’ll rely on them heavily to keep operations moving smoothly in the right direction.

Difficulties Monitoring Off-Site Work

Speaking of reliance on off-site team members, one of the challenges of outsourcing to a different location is monitoring the work being done there. Communication and cultural barriers can frequently make it difficult for a company to effectively manage an outsourced team. This can result in lower-quality work, miscommunication, delays, and increased costs. To mitigate this risk, companies can invest in robust project management tools and systems, hire experienced management team members who are familiar with local culture, and have regular communication and check-ins.

How the 2021 Amendment to the Mexican Labor Law Changed Outsourcing

In 2021, Mexican President Andrés Manuel López Obrador signed the Labor Reform Amendment to the Mexican Federal Labor Law. The law modernized Mexico's labor regulations and improved working conditions for employees. The amendment made several changes that affected outsourcing in Mexico, including:

  1. Increased Flexibility: The amendment made it easier for foreign companies to outsource certain activities, allowing for greater flexibility in using outsourced labor. However, it also requires them to declare a “corporate purpose” or “core economic activities.” It then bans international companies from subcontracting tasks that are part of the declared purpose.
  2. Improved Labor Conditions: The amendment established stronger protections for outsourced workers, including the right to form unions and engage in collective bargaining; and promised improved health and safety standards, especially to those employed at maquiladoras (Mexican low-cost factories.)
  3. Employee Profit-Sharing: The amendment required Mexican outsourcing companies to share 10% of their taxable income with employees under profit-sharing obligations, capped at each employee’s 3-month salary.
  4. Clarified Regulations: The amendment clarified regulations around registering with the Ministry of Labor, obligations around subcontractors and the Social Security law, and establishing legal entities to do business in Mexico.

5 Tips to Build a Strong Outsourcing Partnership

Outsourcing works best when you do it methodically, ensuring expectations are set, and your partner has everything they need to do a good job. Here are five tips to building a strong outsourcing partnership:

1. Find the Right Partner

There are hundreds of BPO outsourcing partners worldwide, and it’s important to narrow down lists of needs, capabilities, staffing levels, etc. Evaluating potential partners can be tough and probably not the core competency of your in-house team. That’s why a consulting group like TDSGS is ideal for finding an outsourcing partner.

2. Clearly Communicate Partnership Expectations

Make sure both parties are fully aware of the outsourcing partnership agreement, who is responsible for what, and that all stakeholders understand what success looks like. Plan regular check-ins and full evaluations at fixed points throughout the relationship to ensure all parties are brought together to discuss successes and challenges regularly.

3. Start Small, Then Scale

Jumping in head-first is rarely a solid business strategy when you have the ability to dip your proverbial toe in the waters first. The nice thing about outsourcing to Mexico, is most providers are used to taking on small test projects first. This gives you a chance to try things out, work out any kinks, and start giving more work.

Starting a relationship with a smaller project first also presents a lower risk in the event that things don't work out. Should that happen, you can find another partner and change direction without heavy investment.

4. Keep an Eye on Supply Chain Operations

Specifically for manufacturing partnerships, outsourced partners can’t do their jobs if they don’t have the necessary elements. It may be the outsourced partner’s job to acquire those supplies or the U.S. company’s job to provide them; either way, the outsourced company should not be held responsible in the event of a supply chain shortage (unless the outsourcing service agreement says differently).

5. Take Measures to Ensure High-Quality Control

Just because work is being done in an outsourcing destination doesn’t mean that quality control measures shouldn’t be put in place. Ensure your plan includes training and process documentation, performance management measures, tracking and evaluation metrics/KPIs, and process change management frameworks. These measures are needed to ensure the outsourced company can work at its best potential.

How TDSGS Helps You Find the Ideal Mexican Outsourcing Partner

Outsourcing to Mexico can offer many benefits to businesses, such as access to a skilled and educated talent pool, favorable labor costs, improved infrastructure, proximity to the US, and favorable trade treaties. However, finding the right partner for your business is important to fully realize these benefits. A good outsourcing partner can help navigate cultural differences, legal requirements, and risk mitigation.

For more than 30 years, TDS Global Solutions has helped businesses find their ideal-fit outsourcing provider. We have helped more than 750 companies across a broad range of industries to grow and scale their businesses with expert talent at affordable rates. TDSGS understands the outsourcing industry in Mexico, and we can help you find a top outsourcing partner to meet your goals in any industry. Contact TDSGS today.

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