8 Benefits of Nearshore Software Development in Mexico

Jul 18, 2023 | Tech & Business News

With its proximity to the United States and a thriving technology sector, nearshore software development in Mexico is an enticing option for companies looking to optimize their operations.

Let’s explore the current state of the Mexican nearshoring market, its massive benefits, where to nearshore in Mexico, and a few clever strategies to ace it.

We’ll also tell you how Distillery can be your ideal nearshore software development partner.

Further Reading:
Explore the basics of Nearshore Software Development and How to Get Started.
Check out this Detailed Comparison Between Nearshore and Offshore Outsourcing to help determine the right model for your business.  

This Article Contains

What Is Nearshore Software Development?

Nearshore software development involves outsourcing software development tasks to nearby countries, such as outsourcing from the United States to Mexico and Argentina. 

For instance, you can nearshore projects like custom software development and quality assurance testing in Mexico. This lets you leverage real-time communication, cultural affinity, and shorter travel times  — at lower costs.

How is it different from onshore and offshore software development?

Offshore development involves outsourcing to distant countries like India and China for significant cost savings, but you may also face language and cultural barriers. 

On the other hand, onshore development, which involves partnering with local companies, offers seamless communication and alignment at the expense of higher costs.

As you can see, nearshoring strikes the perfect balance by mitigating the communication and collaboration issues common in offshoring at costs significantly lower than onshore development.

Ready to pick a nearshore destination for your software development projects?

Let’s explore a few reasons why Mexico should be on your radar. 

Mexico’s Software Development Market in 2024 and Beyond

Here are some statistics that support Mexico’s promising future as a nearshoring haven: 

  • Mexico has 38 IT clusters with around 400 IT outsourcing companies that offer various services like software development, engineering, and high-tech manufacturing. And, with approximately 225,000 tech professionals, Mexico is the second-largest IT hotspot in Latin America. 
  • The software or IT outsourcing industry is set to experience substantial revenue growth from 2024 to 2028, with an expected annual Compound Annual Growth Rate (CAGR) of 11.78%. 
  • According to the Global Innovation Index 2023, Mexico ranked #58 among the “Top Digital Nations Worldwide” and was among the top three countries in Latin America.
  • This Latin American country boasts the highest number of engineering graduates in Latin America, and 25% of all tertiary degrees are in STEM. 

The Mexican government has also helped create a tech-driven environment through various initiatives and reforms. These include: 

  • Digital Agenda for Mexico: It’s a comprehensive strategy to promote digital transformation across multiple sectors. This initiative focuses on expanding broadband connectivity, improving digital literacy, and enhancing e-government services.
  • National Digital Strategy for 2021-2024: It seeks to leverage technology to drive economic growth and social development. It focuses on the digitalization of the public sector and increasing broadband access. 
  • Investment incentives: The government offers tax benefits, grants, and financial support for research and development projects to attract foreign companies. It also encourages technology-related investments in Mexico. 
  • Startup support: The government launched the Startup México program to support the growth of startups and entrepreneurship. The 500 Startups LATAM program provides funding and mentorship to startups across multiple industries. The Fondo Nacional Emprendedor is a government-run grant program that supports entrepreneurs with a focus on the tech industry. 
  • University support: The government opened 120 tuition-free tech universities, incentivizing young people to pursue STEM fields.

The result? 

Major global IT companies like Google, Apple, and Microsoft have set up their R&D offices in Mexico and continue employing Mexican software developers. 

So, what factors have turned the nearshoring spotlight on Mexico?

7 Compelling Reasons For Nearshore Software Development in Mexico

Here’s why Mexico is a lucrative nearshore software outsourcing destination: 

1. Large, High-Quality, Cost-Effective Developer Tech Talent

As you’ve seen above, Mexico has a growing, high-quality developer talent pool. This means you can tap into a diverse range of skills and innovative perspectives, enhancing the quality and creativity of your software projects.

Besides, nearshoring to Mexico can cut recruitment and operational costs due to the cost-effective labor market while maintaining high work standards. Tech talent in Mexico is much more affordable than in the United States and Western Europe. 

In fact, nearshoring software development to Mexico allows businesses to cut their labor expenses by more than 50–70%, depending on the area.  

Moreover, the average cost of living in Mexico ($982) is 60% less expensive than in the United States ($2,433). This means US companies can provide competitive salaries to remote workers in Mexico while still making the most of their outsourcing budget.

2. High-Quality IT Infrastructure

Mexico has over 20 tech parks with modern facilities, including Guadalajara Software Center and Creative Digital City in Guadalajara, as well as Apodaca Technology Park and Monterrey Technology Park in Monterrey. Other major IT powerhouses are in Mexico City, as well as emerging tech hubs like Tijuana and Merida.

The Mexican government has allocated substantial funds to upgrade local tech infrastructure, including the 5G mobile network launch in 2021. This has enhanced internet connectivity and accelerated digital operations. 

3. Geographical Proximity and Overlapping Time Zones

Mexico’s overlapping time zones with the United States offer it a strategic advantage. 

How?

For example, America’s tech hub, San Francisco, is just an hour behind Mexico City and Guadalajara. There’s also no time difference between San Francisco and Tijuana. 

This enables face-to-face meetings and real-time interactions for better remote work collaboration. 

On the other hand, a company in North America outsourcing software development to an offshore location like India would face a 9+ hour time gap.

4. Ease of Doing Business

In addition to the above benefits, many US companies prefer Mexico for nearshore software outsourcing due to its Ease of Doing Business rank (60th place out of 190 global economies).

Here are some factors that contribute to this: 

  • USMCA agreement: The United States-Mexico-Canada Agreement (USMCA) promotes free trade and facilitates foreign investment between the three countries. It also protects intellectual property rights, making nearshoring to Mexico safe and cost-effective. 
  • Membership of international organizations: Mexico is a member of the G20, the Pacific Alliance, and the Organisation for Economic Co-operation and Development (OECD). It signifies Mexico’s commitment to international cooperation and contributes to its overall business environment.
  • Attractive incentives: Mexico offers various incentives to international companies, such as exemption from local or state income taxes on corporate earnings and special grants from organizations like the National Council of Science and Technology (CONACYT). 

5. Cultural Affinity

Since Mexico borders the United States, Mexican developers are typically aware of US workplace ethics, deadline expectations, and quality standards. 

This can help them build strong relationships with a US onshore development team and minimize cultural clashes or misunderstandings. 

Moreover, a nearshore outsourcing vendor may share the same national holidays, making it easier for companies to streamline workflows and deadlines. 

6. Bilingual Workforce

Many Mexican software engineers, programmers, and developers are bilingual in English and Spanish, making communication with clients from the United States and other countries easy and reducing language barriers. 

English proficiency is common among college-educated tech graduates in Mexico. This bilingual advantage also helps American companies offer regional customer support.

7. Proven Outsourcing Track Record

With over 350 outsourcing companies, Mexico has become a hotbed for nearshore software development outsourcing in Latin America. 

Many global IT companies like Google, Apple, Intel, and Oracle, and manufacturing companies, also have a strong outsourcing presence in Mexico. 

Next, let’s explore the Mexican hotspots for software development outsourcing. 

3 Popular Nearshore Software Development Hubs in Mexico

According to CBRE’s 2023 annual report, Mexico City, Monterrey, and Guadalajara stand out among the ten Latin American markets with the best tech talent. 

Let’s take a closer look at these cities. 

1. Mexico City 

As per CBRE’s annual report, Mexico City had the second-highest tech talent employment in Latin America in 2022. 

Mexico City also topped the best city for startups in Mexico in 2023. It’s home to unicorns like Kavak, Clip, and Konfio. 

You can easily find top-tier talent in full-stack development, back-end development, mobile application development, web development, and more.

2. Guadalajara

Did you know Guadalajara is known as “Mexico’s Silicon Valley”? 

The city’s tech talent has attracted IT recruiters like Facebook, Google, Apple, Netflix, etc. 

Guadalajara is also considered the center of education in Western Mexico, producing around 9,000 software engineers annually. Consequently, the city has Mexico’s second-largest tech talent pool and houses over 44 startups. 

The city’s experts are skilled in full-stack development, front and back-end development, agile development, mobile app development, and more.

3. Monterrey

Monterrey is located near the United States border, making it an easily accessible nearshore location for firms in North America. 

According to the Global Startup Ecosystem Index 2023, Monterrey has Mexico’s second-best startup ecosystem, with 47 startups.

The city has a high concentration of tech talent for quality assurance, full-stack and back-end development, mobile app development, and cybersecurity.

Apart from Mexico, other reputed nearshore destinations in LATAM are Argentina, Brazil, and Costa Rica. These countries offer a highly skilled workforce, similar time zones, and a strong tech industry to support your nearshoring projects.

However, like all outsourcing approaches, nearshoring software development services to Mexico does come with some challenges. 

3 Possible Challenges of Nearshoring Software Development to Mexico

There are three nearshore development challenges you should be aware of: 

1. Bureaucracy and Complex Legal Frameworks

Although the Mexican government has taken strategic steps towards digital transformation, facilitating the ease of doing business, you still need to complete paperwork. 

This can delay your nearshore development process. 

You must also comply with several local rules and regulations to conduct business in Mexico. These include: 

  • Data protection laws: Mexico’s Federal Law on the Protection of Personal Data Held by Private Parties (FLPPDHPP) provides guidelines for collecting and processing personal data and is comparable to GDPR in Western and Eastern Europe. 
  • Intellectual Property protection rights: Agreements like the TRIPS (Trade-Related Aspects of Intellectual Property Rights) to protect your IP rights
  • Labor laws: Concerning working hours, overtime pay, benefits, and termination of employment
  • USMCA regulations: Digital trade activities need to align with the United States-Mexico-Canada Agreement (USMCA)
  • Tax obligations: A US company may have tax implications for outsourcing to Mexico. 

2. Delays Due to Longer Hiring and Ramp-Up Times

A nearshore or offshore outsourcing process can be time-consuming if its not done through an experienced service provider. It involves recruitment, onboarding, training, and team integration. 

All this can delay the ramp-up times, negatively affecting development projects, especially time-sensitive ones.  

So what should you do?

Given the complexity of the legal landscape and hiring process, you should engage with a nearshore software development company like Distillery. 

At Distillery, we’re equipped to instantly provide you with the necessary skills and team so you can hit the ground running.

3. Hidden Costs

Hidden costs in nearshoring include unexpected legal fees, communication challenges, cultural training expenses, costs from project delays, and so on.

These expenses can strain finances and extend development timelines, potentially affecting software quality.

Next, let’s explore some steps to help overcome these challenges so that you can nearshore your software development to Mexico successfully.

7 Critical Steps to Help You Nearshore Software Development to Mexico Successfully 

Here are some strategies to help you maximize the benefits of nearshoring software development to Mexico:  

1. Define Your Project Requirements and Expectations

Begin with an analysis of your project goals, scope, tech requirements, quality standards, deadlines, and communication plans. This creates a clear, measurable framework for your service provider.

Next, draft a project plan or Statement of Work (SOW) that clearly outlines these elements. This will keep the vendor’s work in line with your goals and set clear expectations for outcomes and quality.

2. Choose the Appropriate Nearshore Model

Here are three ways to nearshore software development in Mexico: 

  • Staff augmentation: Address specific skill gaps, like mobile app development or artificial intelligence expertise, by integrating a Mexican nearshore software developer or team into their in-house team temporarily. This flexible approach lets you adjust your team size based on evolving project demands, enabling efficient scaling and resource management.
  • Dedicated teams: Hire a Mexico-based development team to work exclusively on your project, providing focused expertise and resources. It’s best suited for long-term projects with evolving requirements. 
  • End-to-end custom software development: Outsource the entire software development process, from initial planning to development, testing, deployment, and ongoing support.

3. Estimate Your Budget

Define your budget by identifying all potential costs, including direct expenses like developer salaries and indirect costs like contingency funds. Research rates by consulting industry experts or potential vendors. 

Your budget will guide decision-making, from feature selection to choosing the right software development partner.

Then, select the right pricing model that aligns with your project needs. It could be:

  • Fixed price: A predetermined price for projects with a well-defined scope and timeline.
  • Time and materials: Costs based on actual time spent and resources used.
  • Hybrid: Combines elements of both models, offering cost predictability and flexibility.
  • Outcome-based: Pricing is tied to the achievement of specific results or milestones.

4. Select A Reliable Nearshoring Partner (like Distillery)

Assess the portfolios of potential Mexican outsourcing partners to understand their local and international industry experience and track record.

Gather feedback and reviews from their past clients. Don’t forget to verify their technical proficiency in areas critical to your project. 

5. Setup Proper Communication Channels

Set up proper communication channels for effective collaboration with your nearshore team. 

Establish regular schedules for updates and feedback. Choose a common communication tool (like Slack) that works for both teams accommodating different time zones.

Moreover, understand and integrate Mexican workplace culture into these communication practices to foster mutual respect and cultural compatibility. For instance, Mexican teams often value strict business hierarchies, so remember to use formal language and proper titles when addressing the team. 

6. Establish Relevant KPIs

Key Performance Indicators (KPIs) are metrics that help monitor the performance, quality, and outcome of the nearshoring engagement. 

Code quality, development time, user adoption rate, and defect rates are some KPIs you can track. 

7. Ensure Data Security and Legal Compliance 

Create a Non-Disclosure Agreement (NDA) to protect confidential information, like codes, shared between you and your nearshoring partner. 

Adopt robust data encryption, strict access controls, and disaster recovery plans to protect your data.

Ensure compliance with legal frameworks like Mexico’s Federal Law on the Protection of Personal Data Held by Private Parties, aligning with international standards like GDPR. 

Feeling overwhelmed by all these steps?

Not to worry — teaming up with a trusted nearshore partner like Distillery can help you streamline the entire nearshoring process. 

The Best Way to Nearshore Software Development in Mexico: Partner with Distillery

Distillery is a highly acclaimed nearshore software development company that offers flexible and cost-effective nearshoring options for all your software development needs.  

Our cross-functional professionals provide the required engineering firepower through:

  • Staff augmentation
  • Dedicated team
  • Full-cycle, end-to-end custom software development

How do we hire our top tech talent?

We look for applicants with in-demand technical skills and verify their expertise through online tests and live coding interviews, ensuring cultural and technical compatibility. Selected candidates are then matched to your project, allowing you to conduct interviews to confirm their suitability.

Once you approve your team, they can start your software development project ASAP.

You get the same talent and skill sets you would get locally. We offer customized cross-functional tech talent for cloud, UX/UI design, QA, project management, and a tailored Service Delivery Approach (SDA).

So, what are you waiting for?

Get in touch with Distillery to harness the nearshoring benefits of Mexico and level up your software development processes.