We think that outsourcing to Mexico is a largely untapped opportunity. It’s not a go-to place like outsourcing to the Philippines or outsourcing to India. But Mexico offers some great advantages, especially for businesses in the Americas. We must say, even these top outsourcing countries can’t beat a couple of those advantages!
On this post, we’ll go over the outsourcing to Mexico pros and cons. We also want to talk about the The 2021 Amendment to Mexican Labor Law and its impact on businesses. Finally, we’ll give you some examples of the best roles to outsource to Mexico.
Advantages of outsourcing to Mexico
Big companies have outsourced work to Mexico since the 1990s. Some even opened up operations there. Smaller companies started taking advantage of outsourcing to Mexico when the internet made it possible. So the whole idea of outsourcing jobs to Mexico isn’t new. It’s all about whether or not it works for you specifically.
Highly educated and skilled talent
Mexico boats of a very large talent pool. For one thing, they have a large population of potential workers. This makes the Mexican government’s focus on education even more valuable. As the vast talent pool began to get trained up about a decade ago, the Mexican economy got a boost. This only encourages the government to put more effort into preparing the people for work. With a particular focus on the STEM areas (science, technology, engineering and mathematics), Mexico is uniquely poised. More skilled graduates means a wider talent pool that is ready to serve with know-how in the latest technologies.
The education in Mexico also extends to the area of language skills. Millions of Mexicans have some degree of English proficiency, with English as the most common foreign language in the country. And that number will only increase as the opportunity for outsourcing jobs to Mexico increases. Mexico has long historical ties with the US. So, they understand each other on some level, even when the English isn’t perfect. Even in areas with limited language practice, you can hire any number of bi-lingual individuals to project manage for you. These professionals are also highly valuable in the US environment where many speak Spanish.
Mexico is situated right under the western part of the United States. This means that it is not only very close to the US geographically, but also in terms of time zones. Mexico has four time zones, just like the US does. This means that you can benefit greatly if you need to work very closely with your teams. It’s also an amazing advantage if you need things done on the spot, like problem-solving. Or, maybe you just prefer assigning tasks in real-time. Either way, the time zone benefit is not something to ever take for granted.
The further away one travels, the more differences one is likely to find in terms of norms and values. This proximity makes Mexico an all-around excellent option for hiring. We must also mention that the cultural overlaps between the US and Mexico are more defined than they are with other countries. Millions of Mexican nationals have family in the US. Many Americans also live and travel to Mexico to study, do ministry work, business, and vacation. This long-term and multiple points of crossing makes the cultures closer and closer.
Despite its proximity to the US, Mexico demands much lower rates than are required locally. In fact, they are easily half the averages in the US for equivalent work, and possibly up to a third. On the surface, this means that any company, large or small, can hire for the positions that they need without straining their budgets. Going deeper, this also means that Mexico offers a greater opportunity to scale. Companies can allocate the significant savings they enjoy into scaling their operations.
Better business infrastructure
Mexico has not always been sufficiently equipped to support outsourcing. Their government has been working on this in the past decade, however. Now, they are on the scene with updated infrastructure, growing as a global hub. Outsourcing to Mexico will only get better as the Mexican Government invests more time, money, and effort into more progressive infrastructure plans in the IT arena.
Currently, Mexico is a pretty impressive tech hub, all things considered. Many companies are attracted to them over other Latin American destinations for their IT outsourcing needs. Mexico City, Guadalajara, Tijuana, Monterrey, and Yucatan are all prime centers of development earmarked by their government. You can enjoy a great tech ecosystem and top talent in any of these areas.
Outside of the IT space, you can also enjoy top tier service in other specialized services like customer care, human resources, and even real estate.
The 2021 Amendment to Mexican Labor Law
Mexico’s president amended the country’s Federal Labor Law to solve an economic issue. Effective April 23, 2021, international companies had to stop subcontracting core business activities. Outsourcing jobs to Mexico is now limited to tasks that are not part of a company’s main economic activity. This removes all liability from Mexico for offshore companies that are trying to avoid their corporate tax obligations. In some cases, this extends to mandatory benefit payments.
This new amendment is a good move for Mexico in preventing illegal activities. It also hurts legitimate business operations, however. The implication for businesses operating in Mexico is that they must use labor outsourcing for minor tasks only. This means any business activities that are not directly related to either the manufacture of a core product or the rendering of a core service. So, companies can outsource tasks like shipping, data processing, hiring, and supply-chain management.
The limitation threatens to cut the amount of savings that businesses can enjoy in terms of human resources. In some cases, it also impacts savings in the areas of office space and equipment. The thing is, the Mexican government did not clearly define what they consider to be core business activities. So, as that is all getting cleared up, businesses can still take advantage of outsourcing to this advantageous location.
Key obligations for businesses under the new labor law amendment
What we do know for certain is the obligations that the amendment defines. These obligations apply to both the hiring company (called the beneficiary) and the hired party (called the subcontracting or outsourcing company). For the purposes of this post, we’ll only give examples of a beneficiary’s obligations to:
- share 10% of taxable income with employees, but not to exceed the equivalent of each employee’s three month’s pay;
- give annual year-end bonuses and health and retirement plans to each employee;
- register with the Ministry of Labor and Social Welfare for proof of meeting social security and tax obligations;
- share a quarterly report with INFONAVIT, Mexico’s employee housing agency;
- within three months of hiring any outsourced talent, include them in the company’s payroll if they serve in core activities; and,
- collect tax receipts from the subcontracting company for withholding tax, employer contribution, and employee salary.
Strategies and actions businesses can take to comply with the new law
The best solution for any business that wants to outsource core activities is to move to offshoring. For businesses based in the US, that would be nearshoring. Transferring business operations to Mexico has its own advantages versus contracting. Mainly, it sustains the benefit of being able to quickly scale the business.
If you prefer to continue outsourcing, you can still retain benefits like reducing or eliminating transportation tariffs. This is because Mexico has twelve favorable Free Trade Agreements with more than 46 countries that benefit outsourcing companies. For instance, the:
- North American Free Trade Agreement encourages trade between Mexico and Canada and the US.
- EU–Mexico Free Trade Agreement removed duties from almost all goods traded between Mexico and the EU.
- Japan–Mexico Free Trade Agreement offers lower trade tariffs on auto parts and agricultural goods traded between them.
Challenges of outsourcing to Mexico and how to overcome them
We all know that you can’t take advantage of the good stuff without dealing with some challenges, too.
Online threats and distance
The biggest concern for any work conducted outside your office is security. When you hire outsourced labor that works online, you face the potential for data breaches. This is true because of inherent online dangers, regardless of whether or not the hire is trustworthy. When you hire from a subcontracting company, you need to focus on building strong trust. In either case, you must ensure a mutually beneficial working relationship. This helps you to avoid getting duped when the other party feels like they’re on the losing end.
When a business owner or manager is far away from an operations team, monitoring performance is challenging. You might suffer untraceable losses without the right tools to keep track of progress and quality.
Labor costs are not the only costs you will shoulder as the beneficiary. Subcontracting services to Mexico involves a lot upfront to get an outsourcing partner on the same page. This time, energy, and capital spent is known as the cost of knowledge transfer and transition.
At this point, you must also consider costs like tax rates and exchange rates, which do not stay the same. This makes them unpredictable and challenging to keep up with.
Top 5 Best Roles to Outsource to Mexico
IT and Technical Support
As mentioned above, Mexico has invested a lot into developing their IT space in the past decade. The country has built up a lot of infrastructure, making them an attractive place to base your IT and technical support needs. The biggest advantage is that you won’t have to pay extra to get them set up.
Software development is one of the top roles that we think you should look to fill in Mexico. Mexico produces more developers than the US on a yearly basis. You can find an abundance of talent for your needs. Because the competition is higher among them, it also means lower rates for you. As mentioned above, hiring from within Mexico is also a flexible option because they can offer you specialized talent without time zone hassles.
When you hire within the pool of bilingual Mexican talent, you can find great customer service agents. Because they speak both English and Spanish, US businesses can serve a wider range of local customers at a high level. You will still enjoy the cost savings without having to hire double the agents or make customers wait longer for responses.
Because of the great cost savings you can enjoy, outsourcing data entry is the wisest choice for any business. This general includes any kind of task that involves the bare basics. For instance, you can outsource research, transcription, database population, website content uploads, and the like.
Human resources is a great area to outsource to Mexico along with other tasks. Again, the bilingual advantage comes into play. A local recruitment manager can easily find top talent for you in any area where you need help. They can also take over interviewing and hiring applicants, facilitating the onboarding process, managing task assignments, and payroll. This makes an already cost-effective solution even more efficient so you can maximize your personnel growth potential. We already know that Mexico boasts a large pool of skilled labor that is very close to the US and Canada, especially.
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We only described the main pros and cons of outsourcing work to Mexico. Depending on what business you are engaged in, you might find other benefits and disadvantages apply to you. Please do some in-depth research with outsourcing partners before you make the decision to hire outside of your country. This will help you to avoid many potentially costly pitfalls. It will also ensure that you can reap the maximum benefits of outsourcing. You wouldn’t also want to pay the cost of not outsourcing, would you?