Outsourcing to Mexico: Benefits and Challenges

 

What is outsourcing to Mexico is a question that many have. This blog post examines how the term is employed.

Outsourcing to Mexico is a concept that has become increasingly popular over several decades. As companies grow and their needs begin to be so specific. The answer to fulfill these needs can often be accessed in Mexico.

In addition, with the rise of the startup ecosystem, outsourcing to Mexico provides entrepreneurs with international high-tech talent. In addition to getting their work done, companies access considerable savings opportunities.

The term outsourcing to Mexico is sometimes looked upon negatively. For some, it may have a less-than-positive connotation. Regardless, business leaders need to understand more about what outsourcing entails.

What is outsourcing to Mexico?

Simply put, the definition of outsourcing is the practice of obtaining goods and services from an outside provider. This practice is most commonly used in industries with a labor shortage for particular positions or where the labor cost is too high—for example, software developers or designers. Mexico offers labor at globally competitive rates.

Companies can turn to outsourcing to Mexico to fill any position. Because qualified labor is difficult to find in some countries, today, we see companies using outsourcing to access pools of labor that can assume a myriad of dissimilar roles. Many organizations often seek talent to support their core infrastructure or assist their day-to-day operations.

Outsourcing: Main Characteristics

According to the latest Deloitte report, its Global Outsourcing Survey, the post-pandemic business climate is characterized by the following:

Cost reduction is back on top.

In the past, many industry players have stated that cost reduction is an added benefit. Even more important than goals like increasing agility or improving service quality. The recent survey shows a sharp increase in organizations prioritizing cost reduction. In the face of a post-pandemic economy, the trend of outsourcing to Mexico will only gain traction.

Robotic and cloud process automation (RPA) is at stake.

It’s no surprise that RPA and cloud solutions are becoming a core strategy for outsourcing. As they become more tried and familiar, they are the starting point for all transformations. Organizations await the next significant technological catalyst to drive the evolution of their business.

Supplier management needs more power.

Third-party ecosystems are more complex than ever. This has implications for regulatory compliance, security, risk, and data protection requirements.

Organizations have increasing expectations that service providers will lead their innovation agenda. COVID-19 puts a lot of pressure on supply chains in organizations. All of these changing dynamics have made supplier management more critical than ever.

Agility is essential.

Changing business scenarios, increased visa restrictions, and rising customer expectations. All of this creates an imperative for service providers to become more agile. Companies will now accelerate general outsourcing to Mexico as they learn to collaborate in a world where speed, quality, flexibility, and cost matter more than geography.

Why do companies outsource?

Companies outsource because it reduces their overhead to produce a product or provide a service, thus, increasing their profit margins. Most often, outsourcing can be seen as a purely business decision.

We live in a world where the same amount of work done in one country or city is paid differently than elsewhere. The economic outlook of a country (measured in GDP per capita) and its institutions set wages. Regardless, the basis of the decision to outsource to Mexico is mainly economic.

According to Brandon Gaille, 46% of companies have cited that their main reason for outsourcing was to reduce operating costs. Twelve percent want access to world-class capabilities in lower-cost countries such as Mexico.

Below is a full breakdown of the reasons people choose to outsource:

1. Reduce or control costs: 44%
2. Gain access to IT resources that are not available internally: 34%
3. Release internal resources: 31%
4. Improve commercial or customer focus: 28%
5. Accelerate the reorganization/transformation of the company: 22%
6. Speed up the projects: 15%
7. Gain access to management expertise not available internally – 15%
8. Reduce time to market: 9%

Types of outsourcing

There are several ways to outsource a business process; depending on the process, one may be preferable to another. Generally speaking, there are a few diverse types of outsourcing depending on the distance between the two members of the business relationship. These types are:

Onshoring. Relocation of work or services to a lower-cost location in the company’s own country.

Offshoring. Relocation of work or services to external providers abroad.

Nearshoring. Relocate work or services to people in nearby regions and countries, often bordering. This option most often pertains to outsourcing to Mexico.

Outsourcing agreements can also vary widely in scope. For specific processes, such as programming or content creation, hiring freelancers from one job to another will be appropriate. A company that outsources its entire IT department will require a long-term partnership with clearly stated requirements.

The current state of affairs of outsourcing to Mexico

In Mexico, outsourcing is stipulated in the Federal Labor Law (LFT). In this regulation, it is considered that subcontracted work has an employer called a “contractor .”According to Milenio, this figure is the one who “executes jobs or provides services with their workers under their supervision, in favor of a contracting party, a natural or legal person who sets the tasks of the contractor and supervises him in the development of the services or the execution of the contracted works.

According to the LFT, in its article 15, this type of work must meet the following conditions:

1. a) It may not cover all the activities, equal or similar in their entirety, which take place in the workplace.
2. b) Its specialized nature must justify it.
3. c) It may not include tasks that are the same or similar to those carried out by the rest of the workers at the service of the contracting party.

If all these conditions are not met, the contracting party will be considered an employer for all purposes of this Law, including Social Security (IMSS) obligations.

However, there is a series of criticisms regarding the misuse of outsourcing to Mexico. Among them is not providing company benefits, such as profit sharing or access to the benefits offered by the IMSS.