Why nearshore to Mexico?


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Why nearshore to Mexico?

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  • Why nearshore to Mexico?

    1. 1. Why nearshore to Mexico? Ronan Martins Soares Manager of Information Technology ronanms@gmail.com Belo Horizonte, Brazil
    2. 2. Cost Efficiency Near Shore engagement configuration has a higher impact in the Total Cost of the Engagement than Offshore´s lower man/hour rates. Source: Whitepaper: “The unique value of Near Shore as an enabler for lower cost of offshore outsourcing”
    3. 3. Unit Cost Vs Total Cost México Asia • 20% (average) high cost • 40% (average) high cost on People Costs on site people site people • Low Direct Travel • High Direct Travel Expenses Travel Costs Expenses • Long Distance • Over Night Flight • Much more wasted time • Few Wasted Time NearShore Offshore (India) (Mexico) Time-Zone 0 Hours Difference 10-11 hours (Central US Time) Travel Time 25 hours 1 to 5 hours Source: Word Press – Benefits of Nearshore IT Outsourcing to Mexico, 2009
    4. 4. Cost Efficiency Travel Expenses Consider the following travel expenses for a trip of 3 full days at vendor’s facility: Concept Mexico India Airfare (2 week advance, economy class) $500 $4,000 Hotel (Sheraton Hotel & Towers $180 / night) $720 (No Jetlag) $900 Total travel time 4 days 8 days Cost of human resources (assuming an $80 /hour client cost and 8hrs per day) $640 $1,280 Total Cost of Travel $1,860 $6,180 From a conservative point of view, travel expenses to an Indian Offshore facility are 330% higher than those of Nearshore. Telecommunication Costs Consider a simple exercise for a 6 month engagement, where team members spend an average of 60 minutes a day in long distance phone calls: Concept Mexico India Per minute cost 19 cents 59 cents 6 month expenditure $1,368 $4,248 There are additional savings on Nearshore engagement. Source: Whitepaper: “The unique value of Near Shore as an enabler for lower cost of offshore outsourcing”
    5. 5. Mexico’s Business Attractiveness Good access to market and best business environment and infrastructure among the main players Source: Location Cost Index database, Mckinsey Global Institute
    6. 6. Nearshore (Mexico) or Offshore (India) ? Source: Gartner – Analysis of Mexico as an Offshore Services Location – 11/17/08
    7. 7. Country Suitability Mexico stands out as a leading destination for investments in technology. Mexico India China Language Excellent Very Good Poor IP & Data Security Excellent Good Poor Educational System Very Good Very Good Fair Infrastructure Very Good Fair Good Political Stability Very Good Fair Fair Cultural Compatibility Very Good Fair Poor Labor Pool Good Excellent Good Cost Good Excellent Excellent Government Support Very Good Excellent Fair Overall Climate Very Good Very Good Fair Source: Gartner Study of Qualitative Indicators of Country Suitability,2007
    8. 8. Highlights – Technology Parks • India simplification of procedures in the technology parks, such as tax incentives, India hiring pool and exports policy rationalization, continues to boost software exports • Software Parks in China are central to its efforts to build capacity for innovation. China There are 80 technology parks focused on exporting software • There are 23 IT Clusters in Mexico, which concentrate 700 companies. The Mexico government is implementing a major development plan up to 2012 to foster the competitiveness of existing clusters along with the implementation of new ones • Buenos Aires concentrates 49% of the total ICT firms. There are four technology Argentina parks, besides the Buenos Aires IT Polo, Cordoba, Mendonza and Rosario, which agglutinates around 400 companies • Taking advantage of Chile’s competitive telecommunications services and its high Chile professional and academic standards, the government is creating poles of technological development • Colombia has six technology parks in different maturity levels. It is a recent initiative Colombia in the country, it has been less than ten years since the first one was foundedAnprotec, STPI, Fedesoft, Prosoft, Chile Foreign Investment Committee , PorsperAR ,Tech Parks websites, A.T. Kearney Analysis
    9. 9. Mexico Technology Parks Mexico Technology Parks benefited from the intense government program to foster software exportsICT tech parks in Mexico • Mexico has 23 technology clusters. The main regions have the advantage of a large pool of existing technology companies, a relatively large supply of labor, good Overview telecommunications infrastructure and tax breaks for locating in the parks ― Mexico City ― Toluca City ― Baja California ― Guadalajara ― Monterrey • Prosoft, a government program, aim to drive new science and technology parks Recent implementation up to 2012 along with fostering the competitiveness developments of existing clustersSource: Prosoft, Secretaría de Economía México
    10. 10. Mexico InfrastructureInfrastructure overview • Regulatory weakness allowed TELMEX to emerge from liberalization as a monopoly Telecommunication • Mexico has among the highest telephone charges and lowest teledensities in the OECD as a result of this monopoly • Broadband penetration remains low at an estimated 4.2 % in 2007 • Installed electricity generating capacity stood at 51GW in 2007 and dependence on imported electricity is growing (30% of total generation) Energy • Energy matrix is based in a combined-cycle (hydro and thermal), generating clean energy but is relies on natural gas • Energy experts forecast energy demand to accelerated requiring net new installed capacity of 16.3 GW by 2016 • Office vacancy rate in 2008 was 6,6% • Strong presence of foreign investments increased the demand Real Estate • After a period of accelerated growth, office lease rates throughout the region now tend to be more stable, increasing at a more natural paceCB Richard Ellis Market View Latin America& Caribbean mid year 2007; EIU Country Profile
    11. 11. Benefits of Nearshore IT México Cultural Affinity US and Mexican culture has had extensive exposure over the years. Cultural similarities facilitate mutual understanding of a project’s objective Geographical Proximity Its geographical proximity reduces total expenditure in air travel and telephone communications. It facilitates face-to-face meetings and facility visits, enhancing trust and peace-of-mind. NAFTA There are no export/import tariffs, no limitations on technology disclosure, and there is a special visa program for Mexican. Time Zone Mexico work on Central Time allowing real-time collaboration, witch is critical for survey, developing and providing rapid response to critical issues. Physical Infrastructure Mexico has a world-class communications infrastructure. English Fluency Communications in English with our bilingual development team is simplified via web meeting. Low Geo-political risk and Intellectual Property Protection Doing business with Mexico provides the business benefits that come with political stability and a defined framework that provides legal and IP protection (NAFTA).
    12. 12. Direct Flights from Mexico to U.S. There are direct flights to the most important USA cities • Atlanta • Florida • Baltimore • Washington • Chicago • Auckland • Denver • Charlotte • Frankfurt • Concinnity • Hartford • Cleveland • Huston • Columbus • Las Vegas • Dallas • New York • Detroit • Ontario • Fresno • Orlando • Indianapolis • Philadelphia • Jacksonville • Phoenix • Kansas City • San Francisco • Knoxville • Seattle • Los Angeles • Toronto • New Orleans 7 to 8 hours of flight from Mexico City to New York
    13. 13. Mexico nearshore key points “American companies who “Several global leaders in want to leverage the time and finance, manufacturing, trade financial efficiencies ofand pharmaceuticals are already outsourcing closer to home availing global and regional IT cannot waste time gathering services from Mexico” – • The advantages of Mexico’s IT services are information to make better President of CANIETI sourcing decisions” being discovered by many global company. - Director of CANIETI • México is your best option because of the country’s proximity, shared time-zone, highly- “Three years ago, the Mexican skilled labor pool, cultural affinity, data and government launched a "Mexico has gained credibility intellectual property protection, government programme, called Prosoft, to as a location for global services support and cash grants, and NAFTA derived delivery. For the U.S., it is a promote the countrys techindustry. The goal is to increase benefits. growing nearshore service the size of the Mexican IT destination; for Latin America, industry to $15bn annually by Mexicos proximity makes it a 2013. Two weeks ago, the viable alternative to domestic government launched an options; and for Spain and advertising and recruiting Portugal, it is suitable as an campaign for Prosoft” offshore location because of its Michael Kanellos, CNET cultural affinity“ Gartner, 2008
    14. 14. THANK YOU! Ronan Martins Soares Manager of Information Technology ronanms@gmail.com Belo Horizonte, Brazil