Everescale Group

Financial Analysis of Starting Operations in Mexico: Cost, Risk, and Time-to-Value

ChrisV — Tue, 26 Aug 2025 07:10:00 +0000

In the highly competitive landscape of the tech industry, staying ahead often involves running foreign operations. However, the challenge lies in doing so efficiently, especially when faced with a tight budget for an always changing global economy. In this article, we’ll explore why B2B tech companies in North America have used Mexico’s soft-landing options, such as SUBaaS, to avoid unnecessary costs and risks associated with the Do-It-Yourself approach. This capex-friendly approach is preferred by Private Investors, as they can achieve more with the same budget while owning the operation from day one.

Due to differences in cost of living between countries, hiring an IT professional in Mexico instead of the United States can result in significant savings—typically around 50% to 60%. This cost advantage is even more pronounced at both the junior and senior ends of the experience spectrum.

Adding Mexico’s operational capabilities to the organization adds access to another Talent Pool for North America and access to the Latin American Market. Because of its lower cost of living, it provides cost-efficient operations in North America. Therefore, the challenge lies in determining the optimal approach to establishing operations in Mexico that minimizes the impact on these potential savings while harnessing other strategic advantages.

The comparison will focus on differences between a company starting and running Mexico operations on their own, versus using the assistance of a soft-landing option. The comparisons will focus on 3 areas: Operation Costs, Risk Management, and Time to Market. The soft-landing option for the IT Industry is known as Subsidiary-as-a-Service (SUBaaS), which is the equivalent of the successful Shelter model used by the Manufacturing Industry for the past 30 years. The SUBaaS follows the pay per use model that Tech Companies know well, scaling at their own pace, minimizing costs and risks by leveraging the economies of scale and expertise of the vendor.d.

1. OPERATION COSTS

Using SUBaaS versus DIY has a direct impact on costs, with the highest differential in the first twelve months, as the DIY has to set up capabilities that require time and resources that will not be maximized until later, when they reach a cost-efficient threshold to offset setup and ongoing operational expenses. The SUBaaS approach follows the as-a-service model, so companies pay only for what they use, benefiting from a shared infrastructure (think AWS). It can start in weeks instead of months, ready to scale in size and functionality when needed, and not before (like Salesforce).

To illustrate the cost differences between DIY and SUBaaS, consider the scenario of a tech company opening a nearshore delivery office that will grow to 90 people over three years. We include setup costs, operating expenses, and administrative staff. Salaries and rent for the engineering team are excluded since they would be the same in both scenarios. This approach isolates the differences in setup and operational support costs between the stand-alone (DIY) approach and the SUBaaS framework.

Annual Cost Difference

Scenario A: Over three years, the foreign company using SUBaaS saves $730,500 USD, representing almost 40% in savings.

This is a conservative comparison, but in reality, the gap will be even larger for two main reasons:

1. For simplicity, the scenario assumes that the DIY approach succeeds on the first attempt every time. In practice, a new company entering a foreign market will go through a trial-and-error process due to the natural local learning curve. Factoring this in further increases the cost gap.

2. A local vendor’s economies of scale can yield additional savings, such as volume-based purchasing power. This can reduce expenses on office leases, hardware, private medical insurance, and more—expenses that quickly add up.

Scale of Operations

As mentioned earlier, for a new foreign operation to be profitable, it must reach a certain size to offset setup and ongoing support costs. The smaller the scale, the more expensive a stand-alone operation becomes. For example:

Scenario B: If the planned operation is a 45-person nearshore office over a three-year period, the cost gap between the DIY approach and the SUBaaS model widens significantly. Using SUBaaS becomes a clear choice, enabling the foreign company to save nearly 60% over three years—equivalent to $1,048,700 USD in savings.

Scenario C: If the operation involves only a 20-person office, the stand-alone approach becomes prohibitively expensive. In this case, SUBaaS delivers savings of over 70% compared to DIY.

2. RISK AVOIDANCE

Countries known for their expertise in attracting foreign investment offer soft landing options that not only deliver cost-saving advantages but also protect (“shelter”) foreign companies from local risks while still running their operations. Although risk cannot be completely 100% eliminated, it can be decreased greatly versus the DIY approach.

This difference can be measured in terms of economic impact across three areas:

2.1 Reduced Exposure to Local Liabilities

Estimate potential fines in Mexico for issues such as misclassification in hiring, tax penalties, and even potential criminal prosecution for improper vendor hiring. Under the SUBaaS model, these liabilities are transferred to the vendor.

2.2 Savings in Advisory/Consulting Fees

DIY operations often require paying for advisory and consulting services in labor law, legal compliance, tax, relocation, and market research. SUBaaS providers handle most of these functions, significantly reducing such costs.

2.3 Lower Shutdown Costs

If there’s a sudden unplanned circumstance that the company needs to terminate operations in Mexico, opting for SUBaaS significantly diminishes shutdown costs compared to the DIY approach.

Using the scenario A, of a new 90 people nearshore operation, the overall shutdown cost impact is reduced by 80%. If it’s at the end of the 2nd year, the cost impact will still be reduced by 35%.

Total Shutdown Costs and Expenses Spent by Yearn.

3. TIME TO MARKET / OPPORTUNITY COST

Estimating the opportunity cost or quantifying the amount of missed revenue in US Dollars due to a delayed time to market can be challenging, as it involves a rough estimate. However, the calculation can be straightforward: it entails calculating the number of months during which the company lacked the resources necessary to deliver the services (either externally or internally) to generate income or company value (whether for the company itself or for its customers).

As noted earlier, one of the main advantages of the as-a-service model is the speed at which operations can be made ready to use. The saved time can be calculated as follows:

Startup Timeline: Launching a new operation in Mexico—including local incorporation, bank account setup, and hiring the first administrative employee—typically requires about four months. This period can be longer depending on appointment availability with local authorities and the timing of the first hire. In contrast, the SUBaaS approach takes about two weeks.
Industry-Specific Expertise: Working with a SUBaaS vendor specializing in your industry not only saves time but also shortens the local learning curve for establishing a new business practice. For example, Everscale Group, which focuses on the Enterprise Software Ecosystem, provides access to a pre-vetted talent pool of experienced bilingual IT professionals. There’s also no need to start from scratch with local universities for recent graduate hiring, thanks to an established Recent Grad Boot Camp program. For a Sales Office setup, a curated list of recommended sales executives is provided, along with assistance in defining local quotas. For a PMO Practice, specialized talent is already identified for tasks such as LATAM Rollout/Localization Projects, AMS, and Presales. This expertise can save an additional 1 to 3 months in achieving full functionality compared to the DIY approach.

In summary, SUBaaS significantly shortens the implementation timeline from project approval to full operational capability for new business practices. For operations involving multiple capability or practice additions, the time gap between SUBaaS and DIY becomes even greater.

A company planning to establish a 50-person nearshore support team could reduce startup time by four months with SUBaaS, plus save an additional two months in building the business practice compared to a stand-alone approach in a foreign country—resulting in up to six months of time-to-value gained. If this service were billable to customers, the opportunity cost would be the revenue lost over that half-year delay.

In Conclusion

For tech companies navigating the complexities of foreign operations with a tight budget, the Subsidiary-as-a-Service option emerges as a strategic enabler. Despite its evident benefits as a financial strategy, its primary advantage lies in its flexibility. During the planning phase, companies outline a proposed operation size and hiring plan, but when reality intersects with the business plan, adjustments are often necessary.

The SUBaaS model provides the essential capability to scale and adapt without incurring additional costs and risks, making it the ideal fit for uncertain economic conditions. This type of approach makes it ideal for a scalable and cost-efficient way to test digital initiatives, according to ISG. It enables critical elements of innovation: agility, scalability, cost-efficiency, and versatility.

La entrada Financial Analysis of Starting Operations in Mexico: Cost, Risk, and Time-to-Value se publicó primero en Everescale Group.

What’s in a Name? GCC-as-a-Service, Micro Capability Center, GBS, CoEs, Subsidiary-as-a-Service, and More

ChrisV — Thu, 17 Jul 2025 16:18:00 +0000

As more companies expand globally, thanks to cost-efficient frameworks that have made international growth accesible to companies of all sizes, there’s one thing we’re still collectively struggling with: what exactly do we call these new foreign operations?

Are we building a Global Capability Center or a Center of Excellence? Launching a Micro Capability Center through a Subsidiary-as-a-Service model? Or is it a GCC-as-a-Service? A Delivery Hub? Or just “our new team in Monterrey”?

The industry is using all these terms, and often interchangeably. But each carries distinct strategic and structural implications. The lack of consistency isn’t just confusing. it’s becoming a blocker to clarity, alignment, and execution speed.

Framework vs. Function: Know the Difference

Let’s draw a simple but important line.

Frameworks describe howyou enter a new country:

These are enablement models—providing the legal, operational, and compliance infrastructure to get up and running.

Operational Centers describe whatyou run in the new location:

Global Capability Center (GCC)
Global Business Services (GBS)
Center of Excellence (CoE)
Nearshore Delivery Center
Regional Office

This distinction often gets lost. Someone might say they’re setting up a “GCC”, when in fact they’re launching a 30-person team under a SUBaaS partner to support the Product QA department of the headquarter.

The Rise of the Micro Capability Center

As expansion strategies shift from traditional offshore centers to nearshore locations like Mexico, we’re seeing a new business practice emerge: the Micro Capability Center.

According to ISG, this is typically refers to a <100-person operation, which can be set up quickly through a SUBaaS model. It’s lean, agile, and often pilot-stage. These cross-functional teams deliver significant value, often testinf and launching new IT or business initiatives.

Companies hesitate to call a 30- or 40-person team a “CoE”, or a “GBS”. These regional offices regional offices frequently blend engineering, administrative, and go-to-market roles that support the region they’re based in.

Offshore vs. Nearshore Strategies

Much of the terms—GCC, GBS, CoE—comes from the offshoring playbook. It made sense in places like India, the Philippines, or Eastern Europe, where operations were designed for volume and cost efficiency.

But companies use nearshore strategies differently, taking advantage of proximity. Tech companies using nearshore usually fall in these two categories.

a. Large Enterprises with existing offshore operations.

They add nearshore centers for functions that require customer proximity, time zone alignment, or real-time collaboration. These teams are usually smaller than their offshore counterparts and focused on regional support. (how Mexico supports North and South America).

b. SMB and Companies with no foreign footprint.

These firms are risk-averse and prefer smaller, more controlled initial expansions. Nearshore locations like Mexico offer cultural affinity, and flight times equivalent to cross-country U.S. travel—making them the ideal first step.

An added benefit? Once established, these nearshore centers can evolve into a regional commercial office to enter a new market, like Latin America.

Trying to apply traditional offshore terminology to nearshore centers builds creates unnecessary confusion to the company strategy. The nature and purpose of these centers are often different; the terminology should reflect that.

So… What Should We Call It?

Getting the name right isn’t just about semantics—it impacts:

Stakeholder alignment: Leadership, board, and teams need to know what’s being built and why.
Strategic clarity: A “Global Capability Center” implies a different level of investment, risk, and effort than a “regional team under SUBaaS.”
Timing & scale: Launching a 500-person GCC in India is a high-commitment move. Starting with a 30-person pilot team in Mexico? Lower barrier, quick pivoting.
Financial expectations: Large-scale GBS centers require scale to reach break-even. SUBaaS teams in nearshore markets can be cost-efficient from day one.

Why Terminology Matters

Until the industry reaches consensus, Subsidiary-as-a-Service may be the most broad, and flexible label for nearshore expansion. It doesn’t constrain the operation to a single function, neither overpromises, and does not commit to a certain scale size.

In practice, companies use this model to open Micro Capability Centers focused on everything from engineering to marketing to AI data teams. And as these operations mature, they can evolve—into full-fledged Centers of Excellence or independent subsidiaries—without the branding mismatch.

In Conclusion

If we want to scale globally with speed and clarity, we need to align on terminology. Let’s distinguish between:

Where we build it (Offshore vs. Nearshore)
How we expand(Framework: SUBaaS, BOT, Shelter)
What we build(GCC, CoE, GBS, Delivery Center)

Whatever the combination of these 3, it will serve a different strategic purpose.

And for today’s agile, strategic nearshore builds—especially in places like Mexico— reading about another company using the Subsidiary-as-a-Service framework to start a Micro Capability Center might start to become more common than you think.y.

La entrada What’s in a Name? GCC-as-a-Service, Micro Capability Center, GBS, CoEs, Subsidiary-as-a-Service, and More se publicó primero en Everescale Group.

Integrated Strategy vs a Fragmented Stand-Alone Expansion

ChrisV — Wed, 18 Jun 2025 15:24:00 +0000

Offshoring has long been a staple of the IT industry, but the rise of artificial intelligence is rapidly reshaping global talent strategies. With Mexico as the undisputed go-to nearshore destination even non-tech companies are now looking to establish there. The value is clear: proximity, a skilled workforce, and cost efficiency. But the path to entry has often been confusing.

Traditionally, companies start by hiring a law firm, headhunting agency, payroll provider, maybe a PEO, followed by accounting and tax advisors, office vendors, local IT providers, and an international regulations consultant. All of this must be stitched together while also hiring the local staff. The result? A patchwork of vendors that the foreign company must coordinate—often while climbing a steep learning curve. It’s slow, expensive, and riddled with opportunities for error.

This discourages any company with a tight timeline and limited resources. Some attempt to cut corners by using an International Employer of Record (EoR) platform, assuming it will be “good enough” for the moment. But they find that they still need a recruitment agency, contract offices, buy salary and market research data, and hire a compliance consultant to oversee how the setup is doing. After all, an EoR is just that, a self-service web platform optimized to work simultaneously for 160 countries.

Surprisingly, both local incorporation and using an EoR will rely on using multiple firms, creating accountability gaps, compliance blind spots, inefficiencies, and unforeseen fees.

So how companies are opening nearshore operations in Mexico more than ever? What options have they found?

Traditional Strategy

Local Incorporation means creating a new legal entity that will operate independently, submitting the owners to Mexican laws. It requires the hiring of legal, accounting, and labor firms, along with local vendors for infrastructure and systems, plus hiring a local staff. On top of that, you need advisors for compliance and international regulations, which will be as expensive as risk-averse the company is.

In a competitive talent market like Tech, top candidates avoid companies without a local presence. During the pandemic, top tech talent in Mexico saw many remote us companies disappear leaving them hanging. So relying on EoR platforms will not instill confidence.

So, how can a foreign company avoid the responsibility of coordinating several unconnected firms in an unfamiliar region, which leads to diffused responsibility when things go wrong. But also, how to lower the overhead cost from vendors to maximize an expansion budget that is already tight.

Soft Landing Options

Countries with strategic locations have a long history of providing soft-landing options, to ease the entry for foreign firms. These models provide one-stop expansion solutions and are available across most industries.

Instead of assembling a puzzle of disconnected vendors, companies can now tap into a turnkey operation from day one. A single provider handles everything—recruiting, payroll, HR, compliance, tax, office space—while the foreign company retains full control of its team, culture and strategy. After all, is their operation, just sheltered from local risks. A single point of accountability.

That’s why more companies are choosing local specialists over the do-it-yourself (DIY) approach, with usage rising from 30% to 45-50% in just four years. This integrated strategy delivers:

Faster time to market (weeks, not months).
Protection from local risks using the provider’s legal entity.
Scalability to any operation size.
Easier pivots or exits.
Avoids cultural missteps and regulatory gaps.

And more importantly, soft-landing providers have built over many years true economies of scale. This enables their customers not only to avoid the typical overhead cost of subcontracting another company, but even lowering operative expenses than the DIY approach.

But not all providers are equal. Avoid global firms that offer expansion services as a side business—as other divisions compete with your core business. Instead, look for pure-play soft-landing providers.

Best Practices

Pure play soft-landing providers have spent years building infrastructure, local relations and industry hubs. This enables them to offer pay-per-use models. Similar to how a startup does not need to build a data center anymore but use from the Cloud only what they need at the moment.

Foreign companies now use models like the Subsidiary-as-a-Service (SUBaaS), also known as GCC-as-a-Service. It lets them start big or small if they want to, eliminating the belief that you need to open a large operation to justify the expansion risk. In fact, some start small to validate assumptions first, adjust, and then scale.

Mexico, the top trading partner of the USA, offers industry-specific specialists, like:

Everscale Group – SUBaaS built for tech companies, offering end-to-end support and flexible scaling. Great for B2B SaaS, IT services, and systems integrators.
Tetakawi – A pioneer in the Shelter model, largest provider for the Manufacturing Industry, with community hubs by manufacturing type.
Intugo – A leader for call-centers, back-office outsourcing, and legal/accounting firms.

These providers simplify Mexico entry by bundling services with one accountable contact, one invoice, and no finger-pointing between vendors.

In Conclusion

Fragmentation creates not just delays, but also blind spots -which, in Latin America’s landscape of regulatory nuance and government complexity, is a risk you can’t afford. Integrated partners reduce friction, accelerate outcomes, and de-risk your investment.

But it does not just simplify expansion, it changes the economics entirely. Previously, only large-scale rollouts could justify the investment. Now, even SMBs can launch small teams, without compromising quality or control

That’s the value of the Subsidiary-as-a-Service model. You plug into existing infrastructure, scale on demand, and stay lean. The partner sees your full operation—HR, legal, payroll, compliance—and can anticipate issues, not just react to them. Their incentives are aligned with yours because they carry the liability.

For companies who want to move fast, stay lean, and scale with confidence, soft landing services aren’t just an option—they’re the strategic default. Now it’s a matter of finding the partner with the most experience in Mexico AND in the preferred industry.

La entrada Integrated Strategy vs a Fragmented Stand-Alone Expansion se publicó primero en Everescale Group.

Artificial Intelligence is Putting the Pressure Back on International Trade, and Talent Wars

ChrisV — Tue, 20 May 2025 16:08:00 +0000

2025 semiconductor sales are projected to reach record highs, driven largely by AI and hyperscale data center expansion.

This voracious appetite for AI infrastructure now faces an additional obstacle with ever-changing trade policies, throwing the supply of critical components into disarray, mostly sourced from Asia and other foreign countries. While headlines focus on materials like lithium, cobalt, rare earths, and chip manufacturing, a parallel crisis is accelerating: the talent crunch.

Companies aren’t just racing to secure cutting-edge GPUs and semiconductors. They’re also scrambling to find engineers, data scientists, and machine learning specialists who can help transform their organizations and clients for a new AI-powered business environment.

The AI boom has turned talent into a strategic supply chain issue as critical as rare earth minerals or chips. And much like the race to restructure international trade operations, companies are rethinking how and where to build their AI teams.

AI Talent Shortage

CompTIA’s Tech Jobs 2025 Report reported nearly 478,000 active tech job postings in the U.S, with AI-related roles increasing to be approximately 21% of that demand, or around 100,000 openings specifically seeking AI skills.

This trend is only accelerating, as non-tech industries have collectively surpassed tech firms in hiring tech talent—a clear signal that AI demand is fueling hiring tech workers in non-tech sectors.

Much like chip supply chains, tech companies have historically relied on global sourcing, especially through offshore centers. But shifting geopolitics and the push for real-time collaboration changed the old offshore playbook. Businesses today run on technologies that extend to every part of the organization. Enterprise software needs to be always on. The new priority? Proximity, stability, and speed.

Enter the Micro Capability Center

Before the AI Trend, companies were already opening small, agile R&D hubs—typically with fewer than 100 people—located in cost-efficient locations. These centers, powered by local providers, are built to test digital initiatives or new markets while scaling efficiently by leveraging the provider’s economies of scale.

Global research firm ISG calls them Micro Capability Centers. This approach enables “critical elements of innovation: agility, scalability, cost-efficiency, and versatility. Conversely, if an innovation falls short of expectations, the business can rapidly pivot to another idea or dissolve the operation and minimize losses.”

This model is especially effective for SMBs, but also highly attractive to large enterprises that need agility as they can’t afford to lose months or millions waiting for a traditional offshore operation to ramp up.

The Perfect Storm

The cost of opening a foreign center has dropped dramatically. “If a company wanted to operate its own offshore captive 15-20 years ago, it required 1,000 – 2,000 people. The economics are now down at 30 – 40 people”, one Forbes analyst notes.

While most B2B software companies and System Integrators have added nearshore operations, companies in other industries and all sizes are rushing to evaluate and implement similar capabilities. The combination of AI-driven urgency and global operations thinking is accelerating this shift.

The role of Mexico

For North America, Mexico has long been the de facto nearshore location. And for AI-driven centers, it continues to check all the boxes.

Proximity: Major cities like Guadalajara, Monterrey, and Mexico City are in the same time zones as U.S. tech hubs—enabling real-time collaboration and similar flight times as from other U.S. cities.
Talent Depth: Each of these metro areas mentioned above has a larger GDP and Population than some entire Latin American countries, like Costa Rica, Panama or Uruguay. Mexico houses over 1,250 higher education institutions, producing 120,000 STEM graduates a year, including top-tier talent from schools like Tec de Monterrey, ranking leader for Business and Engineering in Latin America.
Trade Advantages: Thanks to the USMCA trade agreement, Mexico has the foundation for preferred conditions, predictable IP protections, and lower compliance friction compared to distant offshore markets. This made Mexico the top trading partner of the USA for the past years, above China and Canada.
Geopolitical Alignment: Let’s not forget that Mexico is the only nearshore country the North America. In fact, the U.S., Mexico, and Canada will host the 2026 FIFA World Cup together.

The Soft Landing Advantage

Still, launching a foreign operation comes with real complexity: HR, payroll, compliance, legal structures, procurement, international banking, and cultural alignment. That’s why Soft Landing providers are emerging as strategic partners in the AI age.

They provide a turnkey setup to build and run a nearshore operation, integrating end-to-end services needed to run locally. From local recruiting and team assembly, payroll, compliance, facilities management, legal advisory, and local market data. This compresses time-to-market from 5+ months to just weeks, reduces risk, and allows U.S. firms to retain full control of operations.

The shelter model, used for decades by manufacturers entering Mexico, has evolved into the as-a-Service framework. Foreign companies opening new operations are using this pay-per-use approach. Similar to how start-ups no longer spend time and money on building a new data center from scratch, but use AWS-type options.

In Conclusion

For years, the global supply chain focused on physical components. But in the AI era, the borderless flow of knowledge has become vital.

Companies that treat Talent as a strategic resource and who rethink how and where they build teams will be better positioned to compete. Mexico offers the ideal launchpad, and Micro Capability Centers, enabled by soft landing solutions, are quickly becoming the smartest way to expand. Private Investors are favoring this phased approach as well.

Starting this year, non-tech companies have already been prioritizing getting their data clean, organized, to have the proper foundation for AI initiatives. And on top of that, reports of the 2025 first quarter just saw how AI drove VCs to record investments in Enterprise Saas.

La entrada Artificial Intelligence is Putting the Pressure Back on International Trade, and Talent Wars se publicó primero en Everescale Group.

How Tech Firms & Investors Scale in Mexico – A Roadmap for Success

ChrisV — Wed, 23 Apr 2025 18:06:00 +0000

This article explores how tech firms and investors are expanding to Mexico using a phased approach. By leveraging flexible frameworks, companies can test the market, establish a solid foundation, expand capabilities, and drive regional growth—minimizing risks and total costs.

Private equity firms must deliver a significant return to their investors over a specific period, ensuring that the value of the company they acquire increases.

One might assume they immediately start adding new structures and capabilities to drive rapid growth, but that’s not true. On the contrary, most gradually build layer by layer to ensure success while mitigating unnecessary risks, which can be just as important.

Unknowingly, tech companies are increasingly adopting a similar strategy when opening a nearshore location.

Instead of immediately building a multi-capability operation with a large workforce to support future growth, they are taking a methodical approach. This enables them to validate assumptions and adjust accordingly at each phase, avoiding overspending.

Because Mexico is the undisputed nearshore location for North America, many companies have opened operations in the country, creating numerous success stories and some failures. This has generated enough data to identify a common phase-by-phase roadmap that maximizes the chances of success for those considering expansion.

Operating partners have now incorporated this approach in their playbooks, including cost estimates, timelines, and available frameworks to enable expansion in Mexico (nearshore), not just India (offshore).

Following real cases of enterprise software companies, system integrators, and professional services firms, we identify three phases, including an optional Phase Zero. Remember that some companies might have tighter timelines, leading them to jump directly into phase two or three, while others may stay in phase one, as it is more convenient to their organization plans.

Companies must learn how to benefit from the country’s soft-landing options and engage the right local advisors to help validate their plans to gain this flexibility. So, what are these steps?

Phase 0: Pilot the Region – Temporary Team

An optional phase that some small and medium-sized businesses and risk-averse companies adopt involves setting up a temporary operation to test the region. Available frameworks enable foreign companies to evaluate their regional assumptions and the local talent pool by hiring a temporary team managed by their headquarters. System integrators frequently use this approach, as their global customers often need to implement solutions in their foreign subsidiaries, too, requiring a temporary team in a new country for the project’s duration.

The Subsidiary-as-a-Service (SUBaaS) model, also known as GCC-as-a-Service, can facilitate this setup. This approach avoids early commitments to a region while retaining ownership. It provides additional insights to fine-tune the expansion plan and allows the company to permanently hire the talent after the project ends.

However, it is important to note that even a small team still requires administrative support across various functions to operate locally.

A common characteristic of this phase is that the temporary team consists of senior professionals who require minimal supervision and work remotely from home or a part-time co-working space. The company monitors productivity and skill levels to determine location success and cultural fit, refining hiring strategies accordingly.

Software companies usually skip this preliminary step. As they have a temporary contract, they risk losing trained talent to more appealing permanent opportunities. So, when they use this approach, they quickly move to phase one once their assumptions are validated.

Phase 1: Laying the Foundation – Leadership & Structure

Once the temporary team proves successful, or when a software company is ready to launch operations in Mexico, a location is selected, and an initial small team is established with employment benefits comparable to those at headquarters. An office is set up to establish a local presence.

As private equity firms prioritize laying a solid foundation, foreign companies must first create the right flexible structure and secure strong leadership for future growth. Typically, the initial operation is small and focuses on a single business practice before growing its size.

An incubation or break-even period will occur before the organization starts delivering results. It is essential to estimate setup costs and operational expenses incurred during this period. A soft-landing approach can significantly reduce the local learning curve and initial investment, shortening the time-to-value period.

During this phase, the organization grows its team, develops local business processes, and establishes a local presence.

The team hired at this stage shapes company culture and how the brand is perceived locally, which will play a key role in future hiring needs. This phase enables critical elements of innovation: agility, scalability, and cost-efficiency. Conversely, if an innovation does not meet expectations, the business can quickly pivot or dissolve the operation to minimize losses.

At the end of this phase, the company will have gained insights into local structures and risks, allowing it to decide whether to continue with the SUBaaS model or transition to a wholly owned subsidiary. The current trend shows that companies are increasingly seeking assistance from local specialists, rising from 30% to 45-50% over the past four years, driven by the adoption of newer frameworks that gained traction during the pandemic.

Phase 2: Expanding Capabilities – A Multi-Function Hub

Companies can broaden their team beyond a single business practice with a solid foundation. The Mexico office transitions into a multi-functional hub supporting other business areas, including administrative functions such as collections, accounting, and billing. This leverages Mexico’s cost efficiencies, which are fundamental for private equity portfolio companies.

Initially, the average operation size was below 100 employees, a structure also known as a Micro Capability Center. According to ISG, this approach is “a cost-effective, capex-friendly solution for companies exploring new digital initiatives by allowing them to test the feasibility and determine true value potential”.

From phase one to phase two, companies begin integrating additional business areas from their North American operations, expanding from a software product team in one technology to many. Also, companies add local teams as extensions of departments such as sales, marketing, and customer support, enhancing their North American operations for the company’s planned growth, and increasing its value.

Phase 3: Business Development & Regional Market Expansion

Not all companies move into this phase; instead, they maintain their Mexico office as a nearshore center. However, for those who do, this phase marks the evolution of the office into a revenue-generating center by targeting customers in the new region.

For operating partners, entering a new market is crucial to keep increasing the company value. This can also be achieved through a merger and acquisition strategy, though it requires a significantly higher investment.

When entering the Latin American market, companies choose between the two largest economies: Mexico and Brazil. However, Mexico is preferred for expansion into other Spanish-speaking countries, as Brazil speaks Portuguese, and software products require significant localization, making it a standalone market.

Mexico is also recognized as the proving ground and starting point for Latin American tech startups, serving as a launching pad for other Spanish-speaking countries.

This phase marks the transition from only supporting North America to becoming a market-facing entity. The company establishes a local go-to-market strategy, hires sales leadership and executives, and invests in marketing campaigns. It builds brand awareness by attending industry events and forming strategic partnerships. Software companies often engage local resellers to develop sales channels.

Not all soft-landing providers can support foreign companies at this stage. So, if this step is in future plans, no matter how far, plan accordingly with the right framework and vendor to support it.

A Sustainable Path to Success

A company’s expansion into a new country should be an incremental, well-planned process. By following a phased approach—testing assumptions, establishing a strong foundation, adjusting and scaling operations, transitioning to a multi-functional office, and ultimately driving regional growth—businesses can mitigate risks and optimize their chances for success.

With today’s flexible soft-landing frameworks, there is no longer a need to commit early to a large-scale operation in an unknown region. This methodical approach aligns with a private equity firm’s roadmap, prioritizing creating a cost-efficient structure first, then making significant investments and adding capabilities before pursuing growth in new markets.

The SUBaaS model is similar to AWS’s pay-per-use approach. Instead of building a data center for a new company, customers benefit from economies of scale, scaling in size and functionality as needed. In addition to reducing costs and accelerating time to value, specialized SUBaaS vendors provide valuable research and expertise at each step, shortening the learning curve and minimizing unplanned expenses. This is why it is crucial to evaluate vendors based on their end-to-end expertise and ability to scale alongside their customers, ensuring they have the necessary infrastructure to support long-term growth.

Ultimately, investors and business owners share the same goal: increasing the success rate of an expansion plan in an unfamiliar region to enhance company value—whether by adding new capabilities, entering a new market, or both. Following a phased roadmap provides certainty and much-needed flexibility, enabling companies to adapt to the ever-changing global economic landscape.

La entrada How Tech Firms & Investors Scale in Mexico – A Roadmap for Success se publicó primero en Everescale Group.

Mexico Expansion: What IT Consulting Firms Got Right and Where They Stumbled

ChrisV — Tue, 21 Jan 2025 16:58:00 +0000

Business Consulting Firms and ERP System Integrators are experts at their craft. Their customers trust their expertise to lead the digital transformation of their companies, under a strict timeframe and budgets. Additionally, they have to be masters at scaling up or down their delivery capabilities based on available projects, favoring agile operations.

Leveraging nearshore capabilities has become an integral part of delivering IT services in North America. However, some firms have underestimated the effort needed when opening new Mexico operations, unnecessarily complicating their business outcomes—an issue that could easily be avoided.

Perhaps the proximity of Mexico -just a one-hour flight away- led some firms to assume that hiring and incorporating a company would be similar to the U.S. Others because it was for temporary projects, skipped the research needed to prevent surprises. So, what can other IT Service Providers learn from those who have already done it? What did they get right, and where did they stumble?

Surprises

Firms that skipped proper due diligence sooner or later faced unexpected setbacks. For example, the CEO of a small service firm was stunned when he was sued for unpaid wages by a former employee who had left their Mexico-based company, returned, and then left again. His company had neglected to collect the necessary documentation so now they did not have the required proof to win the case. Additionally, he had to appear at the labor board in an unfamiliar city that the former employee had selected. His reaction? “It shouldn’t be that way.”

Similarly, a large System Integrator that opened a Mexico-based entity, hired an administrative staff that included 15 recruiters to build the delivery practice quickly. Once the team was in place, they attempted to downsize by letting go of 10 recruiters—only to discover they were required to pay severance equal to three months’ salary per employee, despite their tenure being only six months. This resulted in significant financial losses. Another company faced a different issue: after spending more than expected and waiting twice as long as planned to establish a foreign-owned entity, they learned that the structure couldn’t legally be used to hire IT contractors (which was the goal) due to recent labor law changes in Mexico.

But even smaller surprises can impact the bottom line. For instance, companies that follow a Do-It-Yourself approach may struggle with their recruitment efforts for months before someone tells them that Mexico’s unemployment rate is at a 20-year low. This is why their job ads are not impactful, as Tech candidates are not actively searching as they are being frequently contacted by recruiters. Further research might reveal that they are using concepts that don’t mean the same thing —such as using the U.S. annual salary number, which does not translate well to Mexico, where salaries are calculated differently. And you always, always, always, specify if it’s gross or net earnings. And that’s just the start.

What Others Did Right

Surprisingly, those that didn’t have much time, did better. Since establishing a functioning entity in Mexico takes 3-4 months, they cannot tell their new customer that the recently awarded project should wait 5 months to start. Instead, they had to do a deep dive into entry models and what other firms had successfully used in these cases.

Outsourcing to another tech company was out of the question, as it would mean training a future competitor and granting them direct access to customers. Instead, they explored Mexico’s soft-landing options, which have been available for 40 years. It enables foreign companies to launch operations quickly while minimizing risks and costs. In particular, IT service providers favor pay-per-use frameworks, allowing them to test the region before making full commitments. This approach was especially useful in creating a temporary presence to support regional rollouts or project-based work.

Companies using these models were operational within a month and sheltered from potential local risks, so they could put all their focus on their projects. It also helps them to gain extra time to decide when is the right time to create their stand-alone entity. After they gained valuable insights into local laws, such as the importance of co-responsibility laws, which hold firms accountable for hiring blacklisted vendors. By using a shelter model, they avoided potential liabilities and ensured compliance with Mexican regulations.

Advantages gained

True Scalability – Firms that took a do-it-yourself (DIY) approach and hired administrative support staff—including managers, accountants, HR personnel, and recruiters—found that during project downtimes, their teams were idle, adding unnecessary costs. In contrast, those using soft-landing options could pause operations and expenses, when demand fluctuated.
Cost Efficiency – Companies that opted for the Subsidiary-as-a-Service model saved 80% in first-year setup and operational costs compared to DIY approaches. In subsequent years, they saw 40% annual savings on operating expenses.
Number of Experts—Having a cost-effective operation in North America meant that IT Consulting firms could hire more guru-level talent for customer-facing roles with the same budget, enhancing customer satisfaction.
Productivity – Mexico bilingual teams allowed firms to serve both North and South American clients. European companies entering the U.S. also found that they could hire their North American presales engineers in Mexico, maximizing their North American budget.

Conclusion

In the Tech Industry, IT Consulting firms were the pioneers in building offshore centers and later nearshore operations. This is why there are so many stories to learn from, but some continue to repeat costly mistakes. For example, a 1,500-person digital transformation firm with a presence in multiple countries decided to open Mexico operations and to lead this effort, it hired an engineer they knew previously from a Project, because “he was from Mexico”. It failed on multiple fronts.

Another common misstep is thinking that there is software for everything, like subscribing to many platforms to cover the operations locally. Such as using a 160-country payroll software solution, which is good at automating common tasks but will not try to prevent business mistakes, including those mentioned in this article. A foreign company will not know that there is an option in certain cases for hiring on a short training-period contract, which can help them know the employee better before signing the permanent contract. The platform will apply its standard work-for-all contracts and will use global terms, like annual salary, making the foreign company use terms that will not help. These errors will accumulate, transferring the resulting costs to the foreign company.

There´s a common thread in this article based on true events. Those who failed were those with the thinking that “it should be the way that they know back home”, and clearly, that’s not going to work when expanding into an unknown region. But those who did well and did all their homework didn’t experiment. They knew that they lacked expertise for this endeavor and trusted their organization with someone who had done it multiple times. Ironically, this is the same advice they give to their customers.

La entrada Mexico Expansion: What IT Consulting Firms Got Right and Where They Stumbled se publicó primero en Everescale Group.

Hiring a Country Manager for Mexico? What to Expect and Avoid

ChrisV — Fri, 20 Dec 2024 17:39:14 +0000

Expanding into Mexico offers a dual advantage: access to an additional North American talent pool and an entryway into the Latin American market. However, the approach you take can make or break your success.

While hiring a Country Manager remotely might seem like an intuitive first step, companies often underestimate Mexico’s complexity, which requires a more comprehensive approach.

Here’s what experienced organizations recommend prioritizing, along with pitfalls to avoid:

Minimize surprises

Surprises in a new market are costly and time-consuming. Instead of coordinating multiple vendors—such as a headhunting agency, Employer of Record (EOR) firm, tax advisor, facilities/location consultants, international accounting firm, and more, try to hire one end-to-end vendor. It reduces overhead expenses and is more effective in preventing costly surprises. A firm focused on just one area will not have the 360-degree view of a Soft-landing vendor, which will have a more complete understanding of the full effects of a decision.

Soft-landing options are common in countries with strategic locations, reducing entry risks and setup costs for foreign companies while lowering total expenses. These end-to-end vendors streamline operations, covering legal compliance, recruiting, payroll, infrastructure setup, and more. This enables the country manager to focus on driving growth instead of constantly dealing with unforeseen issues.

Do You Need a Country Manager?

If you’re planning to have a small engineering team to serve U.S. clients, a Country Manager may not be necessary. Administrative tasks and local regulations can be handled by the local vendor or shared office provider, instead of hiring a country manager just to be an office manager. Leadership positions for this strategy, usually are hired for the delivery team (e.g., Product Managers or Scrum Masters).

But if you’re entering Mexico to develop the local market, a Country Manager is essential. This role will spend most of his time on sales efforts, and in some cases, the name of the position can also be Regional Sales Director.

Mistakes when hiring a Country Manager

Is crucial to hire someone with previous experience working for international companies, but it should also have to have an entrepreneurship profile, be comfortable with playing multiple roles, and be resourceful when something needs to be done that wasn’t planned. Someone accustomed to a corporate environment with dedicated teams for every function may struggle in a startup-like setting.

Common missteps include hiring a candidate available on a part-time basis, thinking it will help “reduce costs”. Or somebody known in Mexico by the company, but that it lacks sales expertise to take a new company off the ground. And overlooking cultural fit, the Country Manager’s values will shape your office culture.

Real Flexibility

Expansion requires the ability to pivot—not just with the company’s solution but also with workforce size, office locations, and operational structure, creating additional costs. On top of this, expenses can quickly add up if Mexico’s unique set of rules are not considered, such as mandatory heavy severance packages for dismissed employees—even after short employment periods—and not allowing the use of contractors for core functions. Dont’ skip the pre-landing planning, reach out to specialists. You don’t know what you don’t know.

As a tip, don’t reinvent the wheel, there are soft-landing options for each strategy, including pay-per-use options. For instance, the Pilot Operation model allows companies to test the market before committing long-term. And Subsidiary-as-a-Service offers flexibility for scaling operations as needed, avoiding the rigid terms of traditional B.O.T. (Build-Operate-Transfer) contracts. These frameworks also mitigate shutdown costs in case of an abrupt exit or cancellation

Accelerate Time to Market

Setting up a standalone entity in Mexico can take 3–4 months, while soft-landing options can reduce this timeline to weeks. This might sound great, but is not the complete picture.

When entering a new market, there is a learning curve attached, that is difficult to estimate. There might be resellers that the company will be reaching out to, only to find months after that they are not well known and can’t deliver. And trying to enter industry circles will take time to gain their trust, especially for an unknown newcomer with no local references.

As a tip, accelerate your time to market by leveraging industry-specific sof-landing providers, for example in Manufacturing and Tech. They facilitate the entrance to the industry ecosystem, as they are already well known. You gain industry-specific best practices, market data and research, vetted talent databases, and extensive local networks with industry associations, embassies, universities, resellers, and more. This will shorten dramatically the learning curve and improve your time to market.

Conclusion

A post-COVID business environment made some companies think that hiring remotely one salesperson in a new country, working from home, with foreign language demos by engineers in other time zones was a good idea to crack open a market. In reality, the head of the new region will need a structure in place, plus all the help they can get to shorten the company’s learning curve to improve their chances of success, sooner, rather than later.

Soft-landing solutions offer the infrastructure you need without the associated high costs. Like using AWS instead of building your own data center, these solutions provide scalable, cost-effective services tailored to your needs.

Look for specialized vendors in your industry to get the most out of your buck and bounce off your ideas with them. They might remind you that in Mexico you shouldn’t be using the same employee number metric as in the USA to segment potential prospects and might even get you into the door of your first conversations with local industry players.

They will go the extra mile, as your success will mean possible services in more areas. A headhunting firm will only validate references provided by candidates, whereas a specialized provider will tap into their industry network to verify the candidate’s track record. Their vested interest in your success fosters proactive collaboration, such as alerting you of possible unreliable resellers and prospects.

Expanding into Mexico can transform your business. Don’t place the entire burden on one individual. By adding the right soft-landing provider to your expansion strategy, you can reduce risks, increase flexibility, and position your company for long-term success in the region.

La entrada Hiring a Country Manager for Mexico? What to Expect and Avoid se publicó primero en Everescale Group.

How Enterprise Software Companies Leverage Mexico Operations

ChrisV — Tue, 10 Sep 2024 18:31:00 +0000

Adding cost-efficient foreign operations for Enterprise Software Companies has become a staple in the industry. Opting for a Nearshore location instead of Offshore provides a significant advantage for firms requiring real-time collaboration. Mexico is North America’s de facto nearshore option, offering the ideal combination of Talent and Cost. As a result, companies of all sizes are expanding more than ever to Mexico, employing various strategies based on the scale of their operations and goals.

The country could seize half of the total foreign investment inflows in Latin America continent in the coming years and it’s already the USA’s top trading partner. This didn’t happen overnight, as the USMCA Trade Agreement has been in place since 1994, and the Maquiladora program began many years before that. It created an interconnected ecosystem of specialized vendors and solid infrastructure that offers soft-landing options for expansion into the country.

This is good news for tech companies as they have more options than ever to expand into Mexico. However, the abundance of choices can also create confusion. Additionally, having many companies moving into the region means hearing success stories, like Salesforce’s new CoE, but also those that were not as successful, that substantially overran their budgets or had to abort.

For those developing financial and risk evaluation scenarios for their expansion into Mexico, what can they expect when using the Do-It-Yourself (DIY) approach? Alternatively, if they hire a local provider to facilitate the expansion, which engagement model works best? And what should be validated, particularly if you’re unfamiliar with Mexico?

Mexico IT Talent

The convergence of top global software companies setting up their LATAM headquarters in Mexico, a dynamic tech startup ecosystem influenced by its Silicon Valley neighbor, and its strong educational leadership—highlighted by the region’s top-ranked private engineering university—has established the country as a powerhouse for engineering talent in the region.

As expected, the job market is filled with opportunities for data scientists, UX designers, Front and Backend developers, Middleware specialists, and Public Cloud talent. However, with unemployment levels in Mexico at a 20-year low, candidates expect to be recruited rather than actively seeking positions. Beyond engineering, customer-facing roles are also in high demand, including positions in customer support, Pre-sales, Architects, Scrum masters, Program managers, and similar roles. Also, System Integrators know well about the robust talent pool of ERP/BI/CRM consultants available for both temporary and permanent engagements in Latin America.

Guru-level roles are particularly sought after in Mexico, not only because these experts are scarce in the USA and highly regarded by their end-customers, but also because these positions can effectively support both North and South America, offering a dual benefit.

This talent pool continues to expand, fueled by Mexico’s extensive network of over 1,250 universities and colleges, including renowned technology schools like the Tecnológico de Monterrey (the MIT equivalent), Universidad Nacional Autonoma de Mexico, and the University of Guadalajara. Mexico’s extensive network of higher education institutions contributes around 200,000 STEM graduates to the workforce. These highly skilled talent also drive the creation of startups in different fields, for example, there are approximately 332 active local AI companies, 55% founded in the last five years.

B2B Enterprise Software Companies

In the IT industry, Enterprise Software has had the highest growth as companies rely more and more on technology to thrive in the digital economy, and now, big data and artificial intelligence continue to fuel its growth. Private Investors, prefer B2B SW companies over other types of tech companiesbecause these solutions are essential for businesses to operate efficiently during challenging times but also need to scale quickly when the market is up for grabs. Moreover, not paying for these subscriptions is akin to not paying for electricity—without them, companies simply cannot function.

As B2B SW Companies strive for operational efficiency, development centers, and customer support offices are established in Mexico to support their North American strategy. European companies that are looking to reduce the risks and costs of expanding into the U.S. hire sales executives in the USA and part of the presales, administrative, and engineering teams in Mexico, together supporting the North American region.

SMEs too follow this trend, after experimenting during the pandemic with remote work and global hiring, they implemented hybrid work models, creating regional centers closer to their HQ, which can meet regularly.

Besides being a cost-efficient location, Enterprise Software companies use Mexico as their Latin America Headquarters when expanding into the LATAM Market. This strategy is also followed by Latin American Tech startups, as it is the country they target for expanding in the region, as investors recognize it as the starting point to expand in and prove the market for other Spanish-speaking countries. This influx of foreign companies, plus locals, fuels the growth of firms in different tech sectors.

Mexico’s IT landscape growth is not as recent, as newcomers might think. According to the OECD Digital Economy Outlook 2024 report, between 2013 and 2023, Mexico was positioned as one of the member countries of this organization where the IT sector has grown the most. On average, it increased 7.9%, which places it in fifth place in the ranking, behind only the United Kingdom, Iceland, Poland, and the United States.

Nearshoring is also impacting the country’s IT infrastructure growth, as companies need to support not just customers in Mexico but all over the continent. According to estimates by the Mexican Data Center Association, by 2029, 73 new data centers are expected to be built in Mexico, in addition to the 166 already existing in the country.

System Integrators

Before the pandemic, System Integrators were already hiring teams from Canada and Mexico to deliver services to the USA. This was driven by the intense competition for talent in their sector and the shift to the as-a-Service model. Their personnel was already distributed across various cities, so centralizing them in one location didn’t make much sense, because to deliver the services, they needed to travel to different customer locations to implement the solutions. However, with the transition to mostly remote implementations, cities in Canada and Mexico offered travel times similar to those between U.S. cities.

Global System Integrators established their AMS and Helpdesk teams in offshore centers while utilizing nearshore locations for personnel that worked as a team with their onshore delivery employees, resulting in a competitive blended rate for their services. Smaller IT service providers have adopted this organizational model to stay competitive in the market.

This trend, combined with the need for a temporary presence to implement solutions in new countries where their global clients operate, led these companies to experiment with various approaches. Some partnered with local system integrators but faced mixed results, as introducing a local partner often meant bringing a competitor into their customer base who spoke the same language.

Others opted to hire multiple vendors simultaneously—one for headhunting, another for payroll, another for legal services, and so on—but soon encountered challenges. Without a central coordinating and responsible entity, they faced numerous issues. For instance, they learned that they had to pay heavy severance packages to the recruiters after the setup, even if it was for just 3 months. Or when after a long setback-filled timeline, found out that their recently created entity was not permitted to hire contractors for their temporary projects, due to Mexico’s recent labor laws.

Due to these past experiences, IT service providers were among the first in their industry to use Mexico’s soft-landing options. These solutions allow them to establish and control their operations while minimizing risks and costs, and perhaps most importantly, without training a future competitor. By using a pay-per-use framework, the organization can establish a temporary presence for a regional rollout project or pilot the region before making a permanent commitment.

Because of Mexico’s long history of attracting foreign investment, soft-landing service providers are common and specialized by industry. For Enterprise Software companies, this means partnering with specialized vendors who not only understand the difference between a C# developer and a C++ developer but, more crucially, have in-depth knowledge of the local Enterprise software landscape. This industry-specific expertise provided by the vendor, helps avoid wasting resources and time on the wrong potential resellers or engaging with prospects who request time-consuming proof of concepts but are unlikely to buy—often using vendors to do their homework. Additionally, it includes understanding why Guadalajara might not be the best city for targeting financial institutions or why even Mexico City, with its 28 million population, might not be the best talent pool if your solution is aimed at the automotive industry. This expertise is not built overnight.

Conclusions

While many companies establish nearshore and offshore centers to house internal support teams like Shared Services Centers (SSCs) or Global Business Services (GBS) as a cost-efficiency measure, the Enterprise Software ecosystem integrates these centers into its core business operations. These nearshore teams play a direct role in all aspects, from pre-sales to delivery, and support, leaving no margin for error when launching a multi-function regional center, as it’s the core business of the organization.

And with uncertainties in the global economy, these strategies are part of a highly recommended workforce strategy for Enterprise Software companies. Creating a scalable talent engine, that can tap into additional talent pools, and to be able to maintain alignment of high-performing teams capable of adapting to changing market conditions.

Implementing it is not rocket science, soft-landing options work well in augmenting potential cost savings, and the best nearshore option in the Americas is known to be Mexico, already located in North America (Canada-USA-Mexico will host the 2026 FIFA World Cup as a region). The challenge lies in selecting the best strategy—choosing the right city, size, hiring type, and talent that aligns with the company’s goals. For this, understanding local market dynamics is essential for success.

The lessons learned from early adopters demonstrate the importance of partnering with vendors that have been long enough in Mexico to possess both local expertise and true economies of scale advantages. These factors will increase the likelihood of success for planned initiatives in Mexico.

References

Navigating international expansion for European founders, Insight Partners, July 2024
Mexico consolidates its position as a technology hub, attracting investment, talent, and innovation, Mexico Industry, August 2024
How Enterprise Software leaders can understand and implement key priorities, Vista Equity Partners, August 2024
B2B SW is a promising investment sector, Thoma Bravo, October 2023
Geo Expansion to Latin America, Microsoft, December 2020
Silicon Valley funds with continued interest to invest in Mexico, FoxNews, August 2024
Technologies that will make a difference in Mexico, Banco Santander, January 2024
What is Enterprise Software? Benefits and Examples, Robert F. Smith, January 2024
SAP Activate Methodology: Simplifying your transition to the cloud, SAP, 2015
Nearshoring demands the installation of more Data Centers in Mexico, Mexico Industry, August 2024
Why Mexico for opening a Regional Multi-function Office, February 2024
Index Insider: What’s Next as GCC Activity Surges, ISG, January 2024
Mexico widens its lead as the top Center of Excellence Location in the Americas, May 2024
For First Time in Two Decades, U.S. Buys More From Mexico Than China, evidence of how much global trade patterns have shifted – NY Times, February 2024.

La entrada How Enterprise Software Companies Leverage Mexico Operations se publicó primero en Everescale Group.

Expansion Strategies to Mexico: How They Compare

ChrisV — Fri, 23 Aug 2024 18:15:36 +0000

Adding cost-efficient foreign operations for tech companies has become a staple in the industry. Opting for a Nearshore location instead of Offshore provides a significant advantage for firms requiring real-time collaboration. Mexico is North America’s de facto nearshore option, offering the ideal combination of Talent and Cost. As a result, companies of all sizes are expanding more than ever to Mexico, employing various strategies based on the scale of their operations and goals.

DIY strategy

For decades, companies in the Financial, Healthcare, CPG, Travel, and IT Industries, have opened offshore/nearshore operations in cost-efficient countries, on their own or with the assistance of a local provider. These centers provide services to the parent organization and are known as Global Business Services (GBS), Shared Services Centers (SSC), Global In-house Centers (GICs), or Captives.

If done right, setting up a new foreign operation independently could lead to long-term savings when compared to outsourcing it to a local tech company. This approach also mitigates the risk of training potential competitors as they do target the same type of customers. But more importantly, it ensures that the accumulated knowledge in the new location remains within the company, unlike outsourcing to an IT Vendor, where expertise might be lost when team members are reassigned, or the contract ends.

In the DIY approach, fixed and overhead costs are significantly higher in the early years of growth, leading to a higher cost per resource. Scaling down can also be challenging when reality doesn’t match the initial plan. This could be a challenge for IT Consulting Companies that need to tweak their employee base and operating structure more often, including layoffs when necessary, but it is much harder and costly to do it in Latin America which has laws that regulate this practice.

Be aware that Mexico has the lowest unemployment rate in the past 20 years, so new companies hiring in the region will quickly find that a job post of an unknown brand will not get the attention they were hoping for. In addition to this, during the pandemic, there was a surge in hiring for remote positions with high salaries from companies without a local presence. When the global economy adjusted, these jobs ended abruptly, leaving top talent hanging with no place to go. Talent has plenty of options and tends to prefer companies that have a strong local history for employment stability.

The DIY approach has the inherent learning curve associated with expanding to a new country. Risk-averse companies will increase their spending in advisory firms (legal, tax, labor, finance, etc.) to help design their expansion plans and try to minimize surprises and overspending. Be sure to hire known firms specialized in their field, as those who underestimate the importance of their choice of advisors may learn the hard way, that there are also “accountants, lawyers, and public notaries who are out to scam you“.

Soft-landing options

For companies that seek the assistance of a local provider to help them reduce entry risks and gain local expertise to increase the success rate of their new operations, Mexico offers various options by operation size and industry, such as the Shelter Model for Manufacturing.

Although it may seem like there are many options, the services can be easily categorized into just three main choices. The first is for running small and temporary operations using an Pilot Team, the second is for building a large center with a set size and functionality that will be transferred after a set period (Build-Operate-Transfer), and the third, using a framework that is flexible enough that can go from small to large with a pay-as-you-grow structure and can be transferred as well (Subsidiary-as-a-Service).

1. Pilot Team (also known as Managed Team, Incubator Subsidiary, Managed GCC, or Pilot Program)

This option is popular in the IT industry for companies looking to hire a team for a specific duration or to gain a temporary presence in the country to support a global project/rollout. It’s also used to test the region and talent before fully committing to a permanent operation.

The local vendor creates and oversees a temporary operation for the foreign company. This includes collaborative setup planning, recruiting and screening specialized talent, hiring, securing temporary facilities, legal documentation (compliance), and procuring necessary items and logistics, such as travel. While the team is hired under the local vendor’s entity, they are managed by the foreign company.

Pros: The vendor will provide all the services needed to run the operation, which will save money for the company by not hiring multiple vendors or subcontracting others. It avoids working with a potential local competitor. Great choice for running a pilot in the region and validating assumptions.

Cons: Depending on the vendor, the hired talent might be committed to other projects, making it difficult to retain them if they excel or develop valuable expertise for the company. Mexico’s strict labor laws on temporary hiring prohibit certain scenarios. Some vendors don’t have the infrastructure and support staff to scale to large operations.

2. Build, Operate, and Transfer (also known as BOT, Owned GCC)

This setup model gained popularity in the early-to-mid 2000s as many enterprises began their offshoring journey and sought the expertise of local partners. A local vendor is engaged by a foreign company to design, establish, and operate initially the new Capability Center/Captive Center with a pre-defined size for a set period, which will then be transferred to the foreign company after the contract ends. The center will utilize the client’s processes, tools, and methodologies. Its primary goal is to ease the challenges of setting up a new operation in an unfamiliar location.

Commonly, the management oversight is done by the vendor, and the foreign company has limited say in decisions until operations are transferred.

This involves building from the ground up, including new legal entity, structure, and personnel. The vendor will focus on achieving local operational efficiency. It is used by different industries for building a Center of Excellence (CoE), GBS, SSC, GSS, or Helpdesk/Delivery Centers. Traditionally, the main goal is to support the organization rather than develop the new region where it is established.

Vendors often establish long-term relationships with clients and continue to deliver services that are project-based after the transfer phase of the BOT.

Pros: Avoids the local challenges of a steep learning curve, which can lead to higher costs and unexpected risks. By partnering with a local, hiring turnaround time improves as the foreign company gains access to its network and recruitment know-how. Higher success rate of the intended operation by lowering the learning curve.

Cons: Takes as much time as establishing a new operation. Offers little flexibility in changing the initial planned size and structure. Does not reduce local operating expenses like other soft-landing options.

3. Subsidiary-as-a-Service (also known as GCC-as-a-Service, Virtual Subsidiary, Virtual Captive, and Micro-Capability Centers).

The Subsidiary-as-a-Service (SUBaaS) framework is an evolution of initial soft-landing options like the BOT or Mexico’s Shelter Model. Over the years, vendors grew their infrastructure and capabilities in their countries to achieve greater economies of scale and end-to-end expertise. With these advancements and the proven effectiveness of the as-a-service model, SUBaaS has become more common.

As-a-service options like Salesforce or AWS, enabled companies of all sizes to access solutions that were previously only available to a few because of the considerable upfront investments in infrastructure, and support teams. It also eliminated lengthy implementation timelines and shifted the maintenance responsibilities away from the client. Like other aaS solutions, SUBaaS avoids setup costs by following the pay-per-use model, starting in weeks, not months while reducing total operating expenses through economies of scale. This agile approach allows businesses to scale and add functionalities as needed without committing to a specific structure size.

Tech Companies start operations faster under an existing MEX corporation, sheltered from risks and with lower operating costs. It can start big or small, scaling in size and functionality when needed. The foreign company owns the operation and management oversight while the local vendor provides administrative support and the infrastructure. It has the benefits of the BOT model of assisting to bypass the initial learning curve for a higher success rate but also provides a reduction of setup costs and operating expenses.

After a period, operations can be transferred, but it’s important to note that the shared infrastructure and expert teams are provided by the local vendor. The new entity will need to invest to add these resources for their new independent operation. This is why many customers continue renewing the service unless they grow too large, similar to using AWS.

SUBaaS customers use it not only for running GCCs, CoEs, or Temporary Teams, but also to create regional offices to develop their presence in the region, or to foster innovation in a talent-rich environment, creating multi-functional centers, which is why the “Subsidiary” term is preferred.

According to ISG this approach “enables critical elements of innovation: agility, scalability, cost-efficiency and versatility”. Large enterprises also use it, as it is “a cost-effective, capex-friendly solution for companies exploring new digital initiatives by allowing them to test the feasibility and determine true value potential.”

Pros: Adds Flexible and Scalable Operations. It avoids the initial learning curve like the BOT, but also focuses on reducing initial setup costs and operative expenses, creating a more cost-efficient structure. Increases local success rate by gaining industry-specific know-how. If operations must be halted unexpectedly, significantly reduce shutdown cost exposure. Faster time to value.

Cons: It is industry-specific, so is not available to all types of businesses. Due to the need for large infrastructure, specialized teams in all key areas, and an extensive local network to achieve true economies of scale, there are few providers per country.

In summary, don’t fret about seeing multiple names, like Micro-Global-Capability-Center-as-a-Service Model, it will still fall as one of the three options.

La entrada Expansion Strategies to Mexico: How They Compare se publicó primero en Everescale Group.

Mexico widens its lead as the top Center of Excellence Nearshore Location in the Americas

ChrisV — Thu, 06 Jun 2024 16:09:16 +0000

It might surprise newcomers in the region, but regulars know that Mexico has been the top destination for running nearshore operations such as CoE, business units and more, for North America since the 2000s. Seven years ago, Gartner confirmed the country’s leadership due to its large talent pool and hard-to-ignore location, in their Evaluating Global Offshore/Nearshore Locations report. So, why does it continue to be in the news? And how has Mexico increased its lead over other options in the Americas?

The use of nearshore was already accelerating in the Enterprise SW ecosystem but got a big boost when hybrid work appeared and went overdrive with the nearshoring phenomenon, which concentrated in Mexico, of all places. On top of it, the cost and risk of opening foreign operations went down with new soft-landing options. So, who is taking advantage, and what are they building?

Nearshore Accelerates

Nearshore is the business strategy where companies locate delivery capabilities in nearby countries, over offshore locations. Proximity is needed for highly interactive application development projects and business-critical applications versus routine application management done in offshore centers. Competency centers, with methodologies that require same-time-zone collaboration and real-time information exchange, are deployed in the region that needs them.

Nearshore adoption increased when Enterprise Software moved to the Saas model, which enabled a mostly remote implementation. System Integrators started using cost-efficient nearshore teams that could go back and forth when needed. Silicon Valley Startups that wanted to extend their runway, hired product teams in Mexico, which worked well with their real-time Agile Methodologies.

During the pandemic, non-IT companies experimented with remote work and global hiring. However, they eventually shifted to hybrid work models, focusing on hiring closer to their headquarters in regional locations where employees could meet regularly, recognizing the value of face-to-face collaboration.

Nearshoring boom

Is nearshore and nearshoring the same thing? Not quite.

Reshoring or Nearshoring, is the business practice where a company transfers back some of its operations or services to a nearby country. This trend exploded in the past years because of the need to de-risk supply chain disruptions derived from COVID-19 and the United States’ trade tensions with China.

Mexico, being the neighbor of the largest economy and with a trade agreement and infrastructure in place, rapidly benefited. It became the USA’s top trading partner and in 2023, for the first time in Decades, the U.S. bought More From Mexico Than China, showing how much global trade patterns shifted. Mexico, already one of the two heavyweights in the continent, along with Brazil, began to increase its lead as The Nearshore option. According to Fitch Ratings in 2023, Mexico could seize half of the total foreign investment inflows in Latin America continent in the coming years.

As global companies updated their supply chains and brought more of their production closer to the U.S., Private Capital firms are now looking to Capitalize on the Nearshoring trend, accelerating its impact in Mexico. But it’s not just the Manufacturing industry, that has the spotlight of this trend, but the Tech industry has been active as well. On February 2024, Amazon Web Services (AWS), announced it will invest over $5 billion in Mexico, to meet the high demand for cloud services in the region. Two months later, Microsoft announced its first hyper-scale cloud data center in Mexico, becoming the first Microsoft data center region in Spanish-speaking Latin America. Google in the same month, announced moving positions to India and Mexico. Offshore and Nearshore.

For Tech companies, Mexico possesses the two main attributes they evaluate: Talent and Cost. Its population of 130 million dwarfs other countries like Panama, Costa Rica, and Uruguay with less than 5 million people. With a cost of living lower than countries like Chile and Costa Rica, and lower operational expenses than Brazil, it offers the ideal combination.

Who’s opening CoE and Shared Service Centers in Mexico?

Everyone. The usual suspects, Large Indian and Global IT Companies have been in Mexico for the past 20 years, but the growth of foreign Small-to-Midsize companies moving to Mexico has accelerated considerably, due to soft-landing options. Everest Group, mentioned that if a company wanted to operate a foreign CoE 15-20 years ago “it required 1,000 – 2,000 people. The economics are now down at 30 – 40 people”.

Countries with strategic geographical locations have an advantage, and they have built an ecosystem designed to facilitate foreign companies moving into the region. Mexico has had the shelter model for 30 years, which enables foreign manufacturers to operate under an existing Mexican corporation, providing a “shelter” from local risks and lowering operating costs by using economies of scale. The IT Industry adopted this model to start small or large operations quickly, as a pay-per-use model, known as the Subsidiary-as-a-Service framework.

Announcements of global tech companies opening Mexico operations are common, like Koch Global Services opening a subsidiary in Guadalajara, or the new AI Engineering Center from Ascendion in Monterrey, hiring 1,500 positions. But the opening of smaller operations by foreign SME’s has gone unnoticed, except to analyst firms like ISG, which calls them Micro Capability Centers that are well suited for innovation, as it’s a scalable and cost-efficient way to test digital Initiatives. Companies of all sizes are benefiting from this trend, and it does not appear to be slowing down, as Mexico’s airports keep growing double digits. Just last year, Monterrey’s Airport increased substantially its international destinations and had a 22% annual growth of passengers.

In Conclusion

Nearshore shows no signs of slowing down, and for small and large tech companies, it is becoming an integral part of maintaining competitiveness. Mexico will continue to increase its lead as the prime nearshore option, shifting the question for companies from “where” to “how.” A complex setup and steep learning curve can negate the anticipated cost-efficiency of a new center. In LATAM countries, compliance, operating structures, and labor laws differ from those at home and frequently change. CoE’s, Capability Centers, and Regional Sales offices are being set up constantly, so expect to find local vendors with this experience.

Keep in mind that the nearshoring trend has boosted foreign investment in the country, but also attracted new foreign vendors eager to join the trend. Amid all the media noise, we should keep remembering that it is not new. Manufacturing companies have leveraged soft-landing options for almost 40 years. This industry prefers vendors with local experience in multiple areas, as landing in a new country involves not just recruitment, but international laws, taxes, facilities, government offices & university relationships, and much more. Economies of scale are achieved through volume and infrastructure built over time. This way, they add certainty to the many moving parts of international expansion, as they have tight timeframes to meet as they are part of a long productive chain. Tech companies can learn from this industry as well.

La entrada Mexico widens its lead as the top Center of Excellence Nearshore Location in the Americas se publicó primero en Everescale Group.