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.
