During the last few years, Mexico has been spotlighted as an expedient nearshoring destination among American technology businesses. In the first half of 2023, it has attracted $29B in foreign direct investment. But what’s the secret sauce behind the booming and lucrative LATAM IT market?
I’m Maryna Panchuk, Head of IT Recruitment at Alcor, your one-stop shop for R&D and full-cycle IT recruitment services in Eastern Europe and Latin America.
In this article, I will dwell on the advantages of the choice to nearshore to Mexico, median local software developers’ rates (and how they differ from the US), the challenges of outsourcing Mexican developers, and how to leap over them with ease. Plus, I’ve got the inside scoop on various engagement models, including IT recruitment in Mexico with Alcor, so you can pick the one that fits your tech business like a glove.
Mexican IT Market Overview
The IT industry in Mexico is one of the fastest growing in the international outsourcing market. Positioned right next to the USA, Mexico is doing its best to become a top destination for nearshore programming. Picture this: 38 IT clusters with about 400 IT outsourcing companies in Mexico, which offer a wide array of services, including software development, engineering, and high-tech manufacturing.
Many governmental initiatives and reforms have been implemented to create a tech-driven environment with cloud computing, AI, and the Internet of Things at its core. In addition, the Mexican government is renowned for its digitalization, with the latest example featuring Mexico City. In this Mexican tech hub, 75% of interactions between residents and the government can be done online, while the world’s largest city Wi-Fi ensures service access at all times. So, the country is rife with professionals if you consider nearshoring mobile app or other types of development to Mexico.
The increased focus on digitalization and innovation in Mexico is anticipated to result in a boosted CAGR of 12.6% during the next 4 years. Since the sector of software development in Mexico has been developing in a service-centric direction, its largest segment has become IT outsourcing. Now, its GDP for this market is in the global top 15. With mobile app development, fintech, and cybersecurity solutions dominating, Mexico’s software development market volume is expected to rise to $7.9B in 2028.
Why Nearshoring to Mexico is a Good Choice?
Growing Tech Talent Pool
One of the key reasons why American tech companies nearshore software development in Mexico is its vast IT talent pool. There are about 700,000 software developers in the country, which is steadily increasing by over 130,000 STEM graduates annually. Such impressive growth in the tech workforce is conditioned by the government’s initiatives that encourage the young generation to pursue IT careers. And when it comes to education, they’re not just good — they’re top-tier. Developers from Mexico are considered the most educated in LATAM, as they study in highly regarded universities. Six are ranked in the top 50 in Latin America, including the National Autonomous University of Mexico, Tecnologico de Monterrey, and Universidad Autonoma de Nuevo Leon (UANL). If you seek developers with PHP, Java, C#, Python, and Ruby skills, hiring IT professionals from Mexico is your way to go.
Cost-effective Labor
It’s not a secret that the US IT market provides some of the highest annual remunerations for programmers. To reduce costs and, at the same time, get high-quality services, many American tech companies choose Mexico’s tech talent for nearshoring software development. Such a business move allows them to cut their labor expenses by up to 50%, as the average salary in Mexico constitutes about $46,000, while in the USA, it reaches $97,000. But you should keep in mind that salaries vary in different tech hubs, e.g. in Mexico Сity, programmers earn more than in Tijuana.
Here is an example of the salaries for middle positions in Guadalajara to paint you a clearer picture when considering Mexico for nearshore software development:
| Position | Gross Annual Salary, USD | |
| Guadalajara | USA | |
| Front End Developer | 43,000 | 119,000 |
| Back End Developer | 39,500 | 105,000 |
| Mobile App Developer | 48,500 | 101,000 |
| Full-Stack Developer | 39,000 | 101,000 |
| Data Engineer | 32,000 | 114,000 |
| Web Developer | 40,000 | 98,000 |
Strategic Location
Among other key advantages of outsourcing to Mexico is its geographical sweet spot. The location in the southern part of North America makes nearshoring software development to Mexico a dreamy option for US tech companies. For instance, it takes about 4 hours by plane to get from San Jose, CA, to Guadalajara. This enables on-demand face-to-face meetings, which can boost your corporate culture and build better cohesion between two teams. If you would like to continue your tech expansion, Mexico is your gateway to entering other South American IT markets. Then, it’d be easier to go on with nearshoring software development to Colombia, for example.
Similar Time Zones
Another reason why Mexico is preferable for nearshoring software development is due to overlapping time zones (UTC-6, UTC-7, UTC-8) with the USA. For example, the American IT hub of San Francisco has no time difference with the Mexican tech center — Tijuana and is only 2 hours behind Guadalajara and Mexico City. This way, in-house and remote teams can reduce ramp-up time and cope with arising issues quickly and effectively — all to sustain an uninterrupted software development process.
Developed IT Infrastructure
Nearshoring software development to Mexico makes sense because it’s an actively growing economy. Mexico’s government has been allocating massive budgetary funds to upgrade local tech infrastructure and contributing to the growing trend of outsourcing software development to Mexico.
In 2021, the country launched a spanking new 5G mobile network, which is meant to enhance internet connections (and, as a result, speed up digital operations). Moreover, IT companies are also fostered to build AI-based cutting-edge technologies that can streamline software development processes and make them more error-free, which is why the option to nearshore mobile app and other domains of development in Mexico guarantees excellent outcomes. In addition, over 20 tech parks with modern facilities and office buildings were established, including the Guadalajara Software Center, Creative Digital City, Apodaca Technology Park, and Monterrey Technology Park. You can find them in 3 Mexican IT powerhouses — Guadalajara, Monterrey, and Mexico City, as well as in 2 emerging ones — Tijuana and Merida.
Vibrant Business Environment
One more reason why US-based IT companies nearshore software engineers in Mexico is the country’s political stability, low business climate risk, and decent Ease of Doing Business score. And here’s the kicker: “USMCA” (United States-Mexico-Canada Agreement) facilitates foreign investment and establishes free trade between Mexico and the USA, as well as Canada, bringing Mexico to new economic heights. To give you an example, Mexican nearshore software development is supported by the revenue generated from the North American Free Trade Agreement (USMCA). Just the first three months of 2023 brought a 48% surge in FDI from USMCA compared to 2022.
Apart from economic ties, this document also sustains the protection of intellectual property rights, which makes IT outsourcing to Mexico not only cost-effective but also safe. It’s no wonder why well-known giants like Netflix, Google, Apple, Microsoft, Amazon, Oracle, Dell, and Cisco set up camp in this nearshoring destination. However, if you nearshore software outsourcing in Mexico, it’s best to turn to professional legal advisors and take precautions to protect your product. Furthermore, it will ensure legal compliance regarding tech industry-specific taxes and labor laws.
Finally, it’s not only foreign companies that choose to operate and nearshore software outsourcing in Mexico. Multiple governmental grant programs like 500 Startups LATAM and Fondo Nacional Emprendedor encourage local tech entrepreneurs to do business. Currently, there are about 450 startups and 6 unicorns (Kavak, Bitso, Clip, Konfio, Merama, Clara), most of which are concentrated in Mexico City.
Peculiarities of Nearshoring Software Development to Mexico
For quite a long time, employers were taking advantage of a regulatory loophole, hiring software engineers as outsourced workers, and therefore paying zero taxes. To overcome this problem, the government enacted the 2021 Amendment of the Mexican Labor Law that prohibits employers from sub-contracting personnel if it’s done to fulfill a corporate purpose. Therefore, to nearshore outsourcing in Mexico, IT companies have to deal with the following aspects:
- Obtain the registration certificate before the Ministry of Labor and Social Welfare to make sure you can meet Mexican social security and tax obligations;
- Submit a quarterly report to Mexico’s Social Security agency;
- Fulfill profit-sharing obligations by paying 10% of your taxable income to your employees;
- Provide the contractor with a copy of the registration certificate as well as tax receipts.
*Non-compliance of all the above may result in fines or even legal liability.
So, what is the way to work around these challenges of nearshoring to Mexico? Setting up your own team of programmers! Basically, there are 2 options: hire top IT headhunters for a tech company or partner with a BPO agency. The latter covers a much broader spectrum of non-core activities, including IT recruitment, HR, payroll, and management of taxes for businesses that move to Mexico from the USA.
Challenges & Risks of Nearshoring to Mexico
Bureaucracy and Legal Compliance
Even though Mexico has been making decisive steps towards digitalization, most processes related to nearshore development centers and business registration, contract conclusion, and tax payments require in-person presence in governmental institutions. Moreover, frustrating paperwork and vague terms of decision-making by the authorities usually eat up a lot of your time. Not to mention possible inconsistencies if you fail to follow local rules and regulations.
Solution
Here’s a life raft: a professional BPO agency that specializes in IT recruitment in Latin America. Take a leaf from Grammarly’s book. This US-based IT company needed to legalize their remote software developers in the nearshoring destination. As a result, the company received all-around assistance with employment agreements, residence permits, business trip arrangements, consultations on local legislation, and IP rights protection — all sorted. The Grammarly case study shows that scaling up in a nearshore destination with a trustworthy partner can liberate IT companies from arduous paperwork and smooth the entire outsourcing process.
Protracted Hiring Process
Each labor market has its specific features; the Mexican one is no exception. Some tech companies overlook the prior steps needed to successfully hire programmers, especially when implementing nearshore software development in Mexico. As a result, they burn through time and money when assembling a software development team, and what a pity it is to waste all the resources you could channel into product development instead!
Solution
Firstly, analyze the local market to know about its talent trends (developer availability and expertise gaps), competitive landscape, salary benchmarks, and what benefits click with local programmers. As statistics show, 77% of Mexican coders are ready to leave their current job for better pay & benefits, while 76% look for flexibility and remote work opportunities. When devising an Employer Value Proposition (EVP), it’s good to add a Christmas bonus, English classes, and unlimited vacation time. Another IT recruitment tip is to develop a powerful employer brand in the nearshoring destination to accelerate your hiring process.
The Cost of Nearshoring to Mexico vs Local US Developers
As mentioned, Mexico’s IT market provides much lower annual salaries for programmers than the US. Just look at the numbers: hiring a senior Mobile App Developer in your immediate area will cost you a hefty $140K per annum. However, the compensation of the same specialist in Mexico is only $41K. This means that, on average, Mexican tech remunerations hover at about 3 times lower than the US ones, which makes outsourcing software development to Mexico a real bargain. In the table below, you’ll get a glimpse into more salary comparisons of American and Mexican coders. If you are curious about developer wages in other Latin American countries, check out our article on software development outsourcing in Colombia.
| Positions | Junior | Middle | Senior | |||
| Mexico | USA | Mexico | USA | Mexico | USA | |
| Full-Stack Software Developer |
$24,000 | $90,000 | $35,000 | $130,000 | $47,000 | $150,000 |
| Front-End Software Developer |
$31,000 | $75,000 | $40,000 | $110,000 | $50,000 | $130,000 |
| Back-End Software Developer |
$32,000 | $85,000 | $43,000 | $120,000 | $52,000 | $145,000 |
| Mobile App Developer |
$22,000 | $80,000 | $32,000 | $115,000 | $41,000 | $140,000 |
| Game Developer |
$21,000 | $80,000 | $30,000 | $100,000 | $40,000 | $140,000 |
| Data Scientist |
$35,000 | $110,000 | $55,000 | $150,000 | $70,000 | $170,000 |
| DevOps Developer |
$30,000 | $100,000 | $42,000 | $135,000 | $58,000 | $160,000 |
| Software Development Engineer in Test |
$22,000 | $60,000 | $33,000 | $90,000 | $42,000 | $121,000 |
| Embedded Developer |
$23,000 | $90,000 | $35,000 | $107,000 | $48,000 | $132,000 |
| Mexican salaries were converted to US dollars at a relevant exchange rate for March 2023. | ||||||
Nearshoring Software Development to Mexico: Engagement Types
Using the Services of a Freelancer
Looking for short-term cooperation and inexpensive IT services in Mexico? Finding a coder on freelance platforms will do the trick. This option allows you to cut labor costs, benefits, and tax expenses since freelancers work as sole entrepreneurs. Moreover, you won’t have to deal with all IT recruitment stages but get down to business as soon as you contract the right software developer. But here’s the rub: freelancers might not bring the dedication you crave for your project, so take advantage of alternatives, such as nearshore outsourcing in Mexico.
Getting an Outstaffed Team
Another variant is getting software developers from an outstaffed service provider. This solution is a temporary fix to your in-house expertise gap. Based on your business needs, a vendor provides you with coders who possess the required skillsets. You can quickly scale up or down the outstaffed tech team whenever your project changes. However, the catch of this engagement model lies in a lack of commitment from external developers, as they need a sense of ownership over your product. Plus, brace yourself for additional expenses, such as commissions and buy-out fees.
Building a Dedicated Development Team
The most cost-effective and safe option for tech companies is nearshoring BPO services to Mexico. By opting for an all-in-one-place solution, you can hire Mexican developers in your tech team, maintaining complete control over software development and expenses. An experienced IT recruitment company will also handle back-office functions for you, including accounting, payroll management, legal compliance, etc.
This is what the US-based company Sift opted for when they were expanding abroad. Sift had an ambitious goal to build a team of 30+ developers. The company assumed it could face time-consuming IT recruitment if performing it independently. Thus, the company reached out to Alcor and was amazed by the results! It took us only 1 year to provide our client with a fully backed team of 30 programmers. By applying the best practices in recruiting software developers, we managed to close many positions from the second CV! Our IT recruiters work on vacancies, ideal candidate profiles, and appealing EVP to attract only well-versed candidates. Alcor’s account managers and lawyers also sorted the fine print in all legal and payroll aspects to make Sift’s business fully compliant with local labor & contract laws.
In case you’d like to receive professional IT recruitment in Colombia, Mexico, and other Latin American countries, Alcor is your ally! Give us only 3-6 weeks to close one position, and expect nothing short of our 98,6% probation period pass rate. Our team will also gladly cover other BPO functions upon your request.
FAQ
✅ 1. Is Mexico a good choice for nearshore software development outsourcing?
American tech companies can largely benefit from nearshoring to Mexico. This destination boasts over 700,000 programmers, has a convenient location, similar time zones with the USA, and developed IT infrastructure. Read this article to learn more about Mexico’s nearshoring advantages.
2. What are the challenges of hiring software developers from Mexico?
Expanding to new IT markets is not a walk in the park, as you may face multiple issues like ineffective tech recruitment or labor law peculiarities. In this article, I cover both challenges and offer workable solutions to overcome them when hiring programmers in Mexico.
3. How much does it cost to outsource a software developer in Mexico?
The average software developer’s salary in Mexico constitutes around $46,000, while in the USA it reaches $97,000. Thus, by hiring software engineers in Mexico, American IT companies can save over 50% on labor costs.
4. What is the optimal way of getting Mexican programmers for IT companies?
Since software outsourcing to Mexico is not devoid of legal complications, the best way to scale up in this nearshoring destination is by cooperating with an IT recruitment company. Your local partner will assemble a dedicated tech team in accordance with Mexican legislation.